GuruFocus -
- Pre-Provision Profit: Increased by 17% year on year to EUR7 billion in the first nine months.
- Revenue Growth: Nine-month revenues grew 3% year on year.
- Noninterest Revenues: Up 14% year on year.
- Cost-to-Income Ratio: Improved to 69% from 73% year on year.
- Net Inflows: EUR27 billion in the private bank.
- Assets Under Management: Increased by EUR67 billion year to date to EUR963 billion.
- Provision for Credit Losses: EUR494 million, equivalent to 41 basis points of average loans.
- Net Interest Income: EUR3.2 billion across key banking book segments.
- Common Equity Tier 1 Ratio: 13.8%, 30 basis points higher compared to the previous quarter.
- Leverage Ratio: 4.6%, flat sequentially.
- Liquidity Coverage Ratio: 137% daily average during the quarter.
- Net Stable Funding Ratio: 122%, unchanged.
- Issuance Plan: EUR16 billion year-to-date, largely completing the plan for the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deutsche Bank AG (ETR:DBKGn) (NYSE:DB) reported a 17% year-on-year growth in pre-provision profit, reaching EUR7 billion in the first nine months, driven by revenue momentum and cost discipline.
- The bank's nine-month revenues grew by 3% year on year, with 75% of revenues coming from more predictable income streams.
- Asset management saw a significant increase, with assets under management growing by EUR67 billion year to date, supported by strong inflows into a diverse product suite.
- The corporate bank increased deals with multinational clients by 18% compared to the previous year, showcasing strong client engagement.
- Deutsche Bank AG (NYSE:DB) achieved a common equity Tier 1 ratio of 13.8%, 30 basis points higher than the previous quarter, indicating strong capital management.
- Provision for credit losses increased to EUR494 million, with Stage 3 provisions rising to EUR482 million, mainly due to transitional Postbank integration effects.
- The bank faced headwinds from the Postbank integration, leading to longer-than-expected impacts on internal collection and recovery processes.
- Deutsche Bank AG (NYSE:DB) reported a higher-than-expected full-year commercial real estate provision run rate, although it has declined quarter on quarter.
- The German economy's slow growth and recessionary trends pose challenges, with weakness in manufacturing impacting overall economic performance.
- The bank's issuance plan for 2025 remains uncertain, with potential challenges in market conditions affecting future funding strategies.
A: Richard Stewart, Group Treasurer, explained that Deutsche Bank expects to end 2024 with NII flat to the 2023 level of EUR13.1 billion. The bank anticipates a sequential improvement of around EUR500 million in 2025, driven by structural hedge rollovers and growth in loan portfolios. The bank's hedging strategy has significantly reduced exposure to interest rate changes, providing stability in NII.
Q: Could you elaborate on the mitigation of credit provisions due to credit concentration hedging?
A: James von Moltke, CFO, clarified that the mitigation is achieved through funded CLOs, where the benefit of credit protection is recorded as revenue. This results in a geographical asymmetry in accounting, as the credit loss provisions are grossed up while the protection benefits are recorded separately.
Q: How does the change in EBA guidelines affect Tier 2 capital, and does it impact your issuance strategy?
A: Richard Stewart explained that the change requires reflecting the IFRS carrying amount rather than the proceeds amount at origination, impacting Tier 2 capital reporting. However, Deutsche Bank does not plan to offset this reduction with further Tier 2 issuances, and it does not affect senior nonpreferred or senior preferred capital.
Q: Regarding AT1 calls, how do you balance transaction economics versus funding costs across the capital stack?
A: Richard Stewart stated that Deutsche Bank considers investor expectations and market conditions when making call decisions. The bank evaluates each transaction's economics individually while considering the overall impact on the capital stack and stakeholder interests.
Q: Can you provide insights into the CRE restructuring and its impact on provisions?
A: James von Moltke noted that CRE restructurings typically involve sponsors adding equity, with banks offering concessions. Most provisions are incremental valuation adjustments on defaulted loans. The bank is positioned for potential recoveries as properties improve or are sold.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.