Deutsche Bank Reports Sharp Rise in Profit but Broad Revenue Decline -- 4th Update

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.

Deutsche Bank shares closed down 6.6% Thursday in trading in Germany, to EUR15.52. They're down about 20% from their highs earlier this year after the lender put behind it a major litigation threat and then embarked on a successful EUR8 billion capital raise.

On Thursday, Deutsche Bank executives again faced questions from analysts about how much more investment-banking market share the bank might lose to rivals. Shares continued to fall after an early-afternoon conference call. On that call, Chief Executive Officer John Cryan said strategic changes are "starting to bear fruit" but warned that a lot of work remains.

The German lender said net income was EUR466 million ($546.8 million), compared with EUR20 million for the same period a year earlier. But investors focused more on Deutsche Bank's companywide revenues, which declined a worse-than-expected 10% from the year-ago period, to EUR6.6 billion.

Also on Thursday, Deutsche Bank said it reached an agreement with 11 mostly former senior executives who will voluntarily forfeit EUR38.4 million ($45 million) in frozen bonus payments. That amounts to more than half of the almost EUR70 million in bonuses the bank froze while it investigated whether the executives, including former co-CEOs Anshu Jain and Jürgen Fitschen and former CEO Josef Ackermann, could be held personally liable for legal and other costs tied to activities when they served as management-board members.

Deutsche Bank said its supervisory board found "insufficient factual and legal basis" to pursue such claims. The individuals voluntarily waived the unpaid bonuses and believe they upheld their duties as Deutsche Bank executives, the bank's statement said. The individuals declined to comment or couldn't be reached.

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, posted worse-than-expected revenue declines last quarter in most key areas, from securities trading to trade financing.

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 huge 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.

Mr. Cryan said "muted client activity in many of the capital markets" hurt the lender. Net revenue was down 16% in investment banking, which includes deal-advising, securities issuance and trading. In the private and retail-banking unit, net revenue fell 7%. Asset-management revenue fell 4%, but that division earned higher performance fees and would have shown a 7% revenue rise 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 the 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-finance-chief 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 revenue 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 13:08 ET (17:08 GMT)