Austerity and investment banking
Deutsche Bank with “best results” in more than ten years
April 25, 2024, 3:51 p.m
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Germany’s largest financial institution reports its 15th quarterly profit in a row. The reasons are a strict austerity program and a flourishing capital market business. Deutsche Bank is also increasingly getting its IT problem with its subsidiary Postbank under control.
The investment bank’s flourishing business and austerity measures gave Deutsche Bank a noticeable boost at the beginning of the year. Germany’s largest financial institution earned almost 1.3 billion euros on balance and after minorities in the first quarter of the year, as the institute announced. Analysts had expected less. It was also the fifteenth profitable quarter in a row. “In the first quarter we increased our profit by ten percent and achieved the best result since 2013,” said CEO Christian Sewing.
He was also able to further reduce costs. As a result of the restructuring of the branch network in Germany and job cuts, the achieved and expected savings from “completed efficiency measures” amounted to a total of 1.4 billion euros at the end of the first quarter, the institute announced. At the beginning of the year, the financial institution announced that it would cut 3,500 jobs, around 800 of which were already known. Overall, costs fell by six percent to five billion euros.
In the investment bank, income rose by 13 percent to three billion euros – the highest income growth within Deutsche Bank. Things were going well in the fixed-interest securities and currencies business – here income increased by seven percent to 2.5 billion euros. In the private customer bank, however, they fell slightly by two percent to 2.4 billion euros. The fund subsidiary DWS achieved a profit jump of 20 percent to 146 million euros and confirmed its outlook.
“Encouraging progress”
The business of advising on takeovers and capital measures has increased worldwide, and US banks such as Goldman Sachs have also benefited from this. Analysts expect the investment bank to remain the driving force behind Deutsche Bank’s business until 2026. Things were different last year – the retail banking business generated the highest returns.
The institute had recently expressed its confidence that it would achieve its goals for 2025. Sewing now confirmed this: “We are firmly convinced that we can make further progress at all levels and have our goals for 2025 firmly in sight,” he emphasized.
But not everything went smoothly: the integration of the Postbank subsidiary caused massive difficulties last year and brought the financial regulator BaFin into action. There were considerable problems migrating Postbank’s IT to Deutsche Bank’s systems. Customers were temporarily unable to access their accounts and customer service was almost impossible to reach. The bank’s board members even felt the impact of the IT conversion debacle in their wallets – annual bonuses for 2023 were cut. CFO James von Moltke has now reported “encouraging progress” in resolving the problems. Reimbursements were also made to some particularly hard-hit Postbank customers, he added. However, he remained silent about the amount. Overall, the chaos at Postbank is likely to cost Deutsche Bank around 100 million euros, according to CFO James von Moltke.
Among other things, Deutsche Bank set aside 439 million euros in the first quarter, 18 percent more than a year earlier, to cover the problems at Postbank and possible loan defaults in the wake of the crisis on the office and commercial property markets, especially in the USA. For the year as a whole, the group expects risk provisions to be roughly at the same level as the previous year; in 2023 it was 1.5 billion euros.