Deutsche Bank lifts outlook after traders Beat Wall Street

Deutsche Bank signalled it may exceed its full year revenue target as its traders continue to take business from rivals and rising interest rates fuel income from lending.

Germany’s largest lender saw fixed income trading jump 38% in the third quarter, beating most of the big US investment banks and exceeding analysts’ estimates. Revenue at the corporate bank rose 25% as net interest income, fees and commissions surged.

Chief executive Christian Sewing is in the final months of a turnaround plan that has gathered momentum as central banks raise interest rates to combat inflation. While that’s lifting income from lending and fanning the market volatility that his traders need, he’s struggling to keep a lid on costs. The firm laid off dozens of investment bankers as dealmaking slows amid mounting recession fears, Bloomberg reported last week.

“We delivered our best profits in more than a decade in the third quarter as well as in the first nine months of the year, Sewing said in a statement Wednesday. The bank is “well on track to meet our 2022 goals.

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Net income for the three months rose to €1.12 billion, from €194 million a year earlier, Deutsche Bank said. Revenue for the group increased 15 per cent to €6.92 billion, and the lender said there’s now “upside to its full-year guidance of €26 billion to €27 billion.

The results mirrored the performance of UBS, which on Tuesday posted a robust quarter as income from lending to its wealthy clients jumped, offsetting a 58 per cent slump in advisory revenue.

At Deutsche Bank, revenue from advising on mergers and capital raisings collapsed 85 per cent, compared with a 53 per cent decline at Wall Street peers, though the business is relatively small compared with the fixed income trading operation. The lender exited equities trading when it embarked on Sewing’s turnaround plan three years ago.

Sewing at the time focused his plan in large part on the commercial banking unit know as corporate bank, though expectations for a quick recovery of the businesses were initially frustrated as central banks were slow to raise rates. With many now playing catch-up with inflation, the business has seen income from lending surge.

That was also the case for the retail and wealth management business known as private bank, where revenue rose 13 per cent in the third quarter.

Adjusted costs were up in the third quarter partly driven by higher compensation costs. The bank said it’s continuing its “cost-management efforts.”

Credit provisions hit €350 million, the highest in more than two years. The increase was partly driven by deteriorating economic forecasts, but releases from previous periods offset the effect. Deutsche Bank stuck with its full-year guidance for the metric.

Sewing has warned of more difficult times ahead, with a recession in Germany inevitable on the back of the energy crunch and rampant inflation. — Bloomberg