Deutsche Bank Profit More Than Doubles Despite Trading Slump -- 2nd Update

By Jenny Strasburg Features Dow Jones Newswires

Deutsche Bank AG on Thursday said its third-quarter profit more than doubled, beating analysts' expectations, even though trading and overall revenue dropped sharply.

Continue Reading Below

Despite the rise in profit, the results show Germany's biggest bank still has significant ground to cover to convince investors its rebuilding efforts will pay off after years of disappointment and deep cost-cutting.

The bank said net income in the quarter was EUR649 million ($766.7 million) compared with EUR278 million in the same period last year, helped by lower costs and legal expenses.

Deutsche Bank has suffered like many banks in recent months from depressed market volumes. Its core sales and trading revenue fell 30% in the third quarter, most sharply in its big fixed-income trading businesses. Deal-advisory fees also slumped.

Companywide, quarterly revenue decreased almost 10% to EUR6.8 billion, roughly in line with analysts' forecasts. The quarterly profit beat analyst expectations of about EUR253 million, according to a consensus forecast compiled by FactSet.

Shares were down nearly 3%, to EUR14.12, in early trading in Germany.

Continue Reading Below

The bank said noninterest expenses declined 14% year-over-year to EUR5.7 billion. The lender has reduced its headcount by about 4,000 employees this year. It's aiming to return to paying employee bonuses more in line with past years, after sharply cutting and restructuring overall bonuses last year amid heavy losses. That move hurt already-low morale at the bank. This year's bonus pool won't be calculated until year-end.

Big banks globally have been hit by low market volatility, depressed trading volumes and the negative effects of persistent low interest rates. Deutsche Bank traditionally has relied more heavily on fixed-income trading for profits than many of its peers have. Big U.S. banks that already reported third-quarter earnings got sizable bumps from strong investment-banking performance, private banking or other businesses that helped offset trading revenue declines.

Deutsche Bank executives are under pressure to show progress in a turnaround that has been slower than many investors expected.

"While the revenue environment remained challenging, we have made significant progress on our key initiatives such as the planned merger of Deutsche Bank and Postbank in Germany as well as the preparation for the IPO of our asset management business," Chief Executive John Cryan said in a statement. He added that benefits will "become more apparent in the coming quarters and years."

Investment-banking revenues -- which include securities trading, deal financing, merger advisory and transaction banking -- were down 23% in the third quarter, to EUR3.5 billion. Fixed-income trading revenues were 36% lower in the quarter compared to a year ago. But the results looked better -- down 24% year over year -- when factoring in more-stable financing revenues that used to be included in the trading revenues. Deutsche Bank this year split out certain financing results such as asset-backed lending from bond and currencies trading to help show investors that portions of its big fixed-income business are more stable than often perceived.

Revenues in the private and commercial bank were up 3%, to EUR2.6 billion. Revenues in the asset-management unit were stable for the quarter at EUR628 million. Deutsche Bank plans to float a minority stake in that business by 2019 through a public offering. The bank said that plan is on track.

Deutsche Bank has been seeking to revive deal-advising profits and win back business in other areas, such as cash-management services for corporate clients and trading with hedge funds, after a stark period of cost-cutting and risk-paring. It's still suffering from a pull-back by hedge funds and other clients in what's known as prime finance. Last year, many of those trading clients pulled balances from Deutsche Bank over worries that big legal bills threatened to destroy its capital cushion.

Deutsche Bank is still working through a prolonged restructuring period and strategic shifts that analysts and investors say remain unproven. The bank, led since mid-2015 by Mr. Cryan, this year reversed an earlier decision to split its trading and investment-banking businesses, and also said it will integrate a German retail business, Postbank, it had planned to sell.

The lender earlier this year settled a big U.S. probe into crisis-era sales of mortgage securities and raised $8.5 billion in a share sale, putting immediate fears about inadequate capital to rest.

Still, its shares have underperformed peers. They're down about 5.6% this year, compared with a 9.4% increase in the Stoxx Europe 600 Banks index, according to FactSet.

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

(END) Dow Jones Newswires

October 26, 2017 04:37 ET (08:37 GMT)