Deutsche Bank Reports Sharp Rise in Profit but Broad Revenue Decline --3rd Update

By Jenny Strasburg

Deutsche Bank AG's cost-cutting moves helped it beat analysts' expectations in the second quarter, but year-over-year revenue fell in all three business divisions as its chief executive faces pressure to revive results amid a continuing overhaul.

The German lender said Thursday net income was EUR466 million ($548 million), compared with EUR20 million for the same period a year earlier. Deutsche Bank's companywide revenues declined 10% from the year-ago period, to EUR6.6 billion.

Investors want to see Deutsche Bank prove it can cut its workforce, expenses and overall risk-taking without further weakening its moneymaking engines.

But its biggest division, investment banking, suffered worse-than-expected revenue declines in most key areas, from securities trading to trade financing.

Deutsche Bank shares were down more than 4% before partially recovering Thursday morning. They were down 3%, at EUR16.10, in early trading in Germany.

Expectations for the quarter were modest, with analysts projecting Deutsche Bank to manage a narrow profit of about EUR169 million, according to consensus estimates of 12 analysts compiled by the bank.

Dismal results in the bank's massive trading division show it remains hobbled in the business it has long depended on most for profits. Overall trading revenue across debt, interest rate products, currencies and equities was down 18% last quarter.

The fixed-income piece of that business -- the most important for Deutsche Bank -- performed roughly in line with big U.S. rivals during what was broadly a rough quarter for debt trading. Deutsche Bank's fixed-income trading revenue was down 12%.

But unlike those U.S. banks, Deutsche Bank failed to get a bump from clients' stock-trading. The German bank's equities-trading revenue fell 28% from a year earlier. Not enough hedge funds and other clients have come back to the bank after a rocky 2016 to generate the volume of business it had a year ago, according to the bank. And the clients who have returned aren't paying enough fees to make up for the exodus.

Chief Executive John Cryan said "muted client activity in many of the capital markets" hurt the lender. Net revenues were down 16% in investment banking, which includes deal-advising, securities issuance and trading. In the private and retail-banking unit, net revenues fell 7%. Asset management revenues dropped 4%, but that division earned higher performance fees and would have shown a 7% revenue increase, excluding a one-time accounting charge last year, Deutsche Bank said.

The lender said clients continued to return to Deutsche Bank last quarter, bringing EUR9 billion in net inflows across the retail and private bank, wealth management and asset management.

This time last year, clients were pulling money and business from Deutsche Bank over concerns about big legal charges and its capital cushion.

The lender is going through its second major restructuring in less than two years, recombining its investment bank and trading divisions and folding in a German retail-banking business, Postbank, that it had intended to sell. It is now integrating Postbank and has closed hundreds of bank branches as part of broader cost-cutting moves.

Deutsche Bank brought on a new chief financial officer, former Citigroup Inc. Treasurer James von Moltke, who started this month. Ex-banker-turned-CFO Marcus Schenck is now overseeing the recombined investment bank along with trading-unit chief Garth Ritchie.

Mr. Cryan and his management team are under pressure to rejuvenate Deutsche Bank's lagging revenues after raising EUR8 billion in capital from shareholders earlier this year.

Citigroup Inc. analysts called Thursday's results "low-quality," because cost-cutting benefits can't keep making up for lagging performance, and Deutsche Bank hasn't proven it can revive revenues as much as investors expected.

The bank said it cut head count by almost 4,700 employees from a year ago, to 96,652 full-time workers, as of the end of June. Its noninterest expenses last year were down 15% from a year ago.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

(END) Dow Jones Newswires

July 27, 2017 04:27 ET (08:27 GMT)

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