Deutsche Bank shares fall despite rising earnings as traders see uncertain outlook

german bank reported its 10th straight quarter of earnings on Thursday, but shares fell as analysts focused on an uncertain outlook and weakness at the investment bank.

Deutsche Bank reported net profit attributable to shareholders of 1.8 billion euros ($1.98 billion) in the fourth quarter, bringing its 2022 annual net income to 5 billion euros, an increase of 159% over the year former.

The German lender nearly doubled the consensus estimate among analysts polled by Reuters of 910.93 million euros in net profit for the fourth quarter and beat a projection of 4.29 billion euros for the year.

Despite the strong net profit numbers, Deutsche Bank shares were down 2.4% mid-morning in Europe as analysts focused on uncertainty in the macroeconomic outlook, evidenced by the bank’s reluctance to issue a repurchase of shares at this time.

Amit Goel, co-head of European bank equity research at Barclays, called the results “a bit mixed” as the strong earnings message for 2023 was offset by a weaker-than-expected fourth quarter across many other metrics. particularly the investment bank.

“The revenue loss against consensus and our estimate was also largely due to lower IB and corporate center results partially offset by better corporate banking; within IB, both FIC and origination and advisory were lower,” he said. goel.

The investment bank’s total revenue fell 12% year-on-year in the fourth quarter. Its contribution to Deutsche Bank’s central bank pre-tax profit fell 6% to 3.5 billion euros.

The bank’s full-year results follow a comprehensive restructuring plan, announced in 2019, to reduce costs and improve profitability. It saw Deutsche Bank exit its global share selling and trading operations, scale back its investment banking and cut around 18,000 jobs by the end of 2022.

The result marks a significant improvement on the 1.9 billion euros reported in 2021, and chief executive Christian Sewing said the bank had “successfully transformed” over the past three and a half years.

“By refocusing our business around core strengths, we have become significantly more profitable, better balanced and more profitable. In 2022, we demonstrate this by delivering our best results in fifteen years,” Sewing said in a statement on Thursday.

“Thanks to the disciplined execution of our strategy, we have been able to support our clients through highly challenging conditions, demonstrating our resilience with strong risk discipline and sound capital management.”

After-tax return on average tangible shareholder equity (RoTE), a key metric identified in Sewing’s transformation efforts, was 9.4% for the full year, up from 3.8% in 2021.

Other quarterly highlights include:

• Provisions for bad debts stand at 351 million euros, compared to 254 million euros in the fourth quarter of 2021.
• The Common Equity Tier 1 (CET1) ratio, a measure of bank solvency, came in at 13.4%, compared with 13.2% at the end of the previous year.
• Total net revenue was €6.3bn, up 7% from €5.9bn in the same period of 2021, but slightly below consensus estimates, bringing the annual total to €27.2bn in 2022 .

Deutsche also recommended a shareholder dividend of 30 cents a share, up from 20 cents a share in 2021, but did not announce a share buyback.

“On share repurchases, given the uncertainty of the current environment that we see, also some regulatory changes that we’d like to see both the timing and scope of, we’re holding back for now. We think that’s the prudent action to take, but we have intend to review that,” Chief Financial Officer James von Moltke told CNBC on Thursday.

He added that the bank would likely reassess the outlook in the second half of this year and reaffirmed Deutsche’s target of 8 billion euros in capital distributions to shareholders through 2025.

Deutsche’s corporate banking unit posted 39% growth in net interest income, thanks to “higher interest rates, strong operating performance, business growth and favorable currency movements.”.”

Fourth quarter ‘reduced’

The bank said some tailwinds were offset by a slump in trading that has hit the broader industry in recent months.

“The fourth quarter slowed down a bit for us in November and December, but it was still a record quarter in our FIC (fixed income and currency) business for a fourth quarter, $8.9 billion. [euros] throughout the year,” CFO von Moltke told CNBC’s Annette Weisbach.

“We’re delighted with that performance, but…it fell a bit short of analyst expectations and our year-end guidance.”

He said January had been a month of strong performance for the bank’s trading divisions as market volatility persisted.

“That gives us some encouragement that our general view, which was that volatility and conditions in the macro businesses would decrease over time, but would be replaced if you want from a revenue perspective with increased activity in micro areas like credit, mergers and acquisitions, equity and also debt issuance,” he said.

“We see that it is still intact as a thesis of what ’23 will be like.”