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July 28, 2010
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Deutsche Bank AG (DB) reported a second quarter net income of €1.2 billion ($1.5 billion) or €1.75 a share, up from €1.1 billion or €1.64 per share a year earlier. While the company experienced a substantial drop in revenues from investment banking, this was more than mitigated by lower loan loss provisions, gains realized from the acquisition of commercial banking activities from ABN AMRO in the Netherlands and a gain on its own debt.
Deutsche Bank reported net revenues of €7.2 billion compared with €7.9 billion in the prior-year quarter. Corporate and Investment Bank unit, the major contributor of the company’s total revenues, reported net revenues of €4.7 billion, down from €5.3 billion in the second quarter of 2009.
Deutsche Bank reported a provision for credit losses of €243 million compared with €1 billion in the year-ago quarter. The results reflect the company’s efforts in reducing the risky assets’ exposure in its portfolio.
During the reported quarter, Deutsche Bank incurred about €270 million in charges related to Ocala Funding LLC, a commercial paper vehicle, and an impairment charge of €124 million on The Cosmopolitan Resort and Casino property.
However, the negatives were partially offset by a €208 million gain associated with the acquisition of commercial banking activities from ABN AMRO in the Netherlands. Additionally, the company recognized fair-value gains of €101 million from changes in credit spread on some of its own debt.
Deutsche Bank experienced a decrease in its non-interest expenses, which were €5.4 billion in the reported quarter, compared with €5.6 billion in the year-ago quarter, reflecting the non-recurrence of major severance costs and legal settlement expenses. However, it was partially offset by a higher amortization of bonuses deferred from the previous years and increased compensation and benefits resulting from acquisitions.
Deutsche Bank’s Tier 1 capital ratio was 11.3% at the end of the quarter, up from 11.2% at the end of the prior quarter and 11.0% at the end of the year-ago quarter. Excluding hybrid instruments, the core Tier 1 ratio was 7.5% at the end of the quarter, unchanged from the end of the prior quarter.
Competitors
Deutsche Bank’s results were in line with other investment banks such as Credit Suisse Group (CS), JP Morgan Chase & Co. (JPM) and Citigroup Inc. (C) who have reported a significant decline in trading revenues in the second quarter, reflecting market declines as investors showed a reluctance to invest, with the sovereign debt crisis and regulatory reform related issues looming on the horizon.
On the other hand, UBS AG (UBS) posted its third consecutive quarter of net profit aided by strong contributions from its Investment Bank division and a drop in client money outflows.
Our Take
Deutsche Bank has adopted several strategic initiatives in the past quarters, including the repositioning of its core business, bolstering of capital levels, opportunistic acquisitions and investments in organic growth. Going forward, though we expect the company to post a growth in earnings, we think any significant improvement will be necessarily restrained by the tardy recovery of the overall economy.
Read the full analyst report on "DB"
Read the full analyst report on "CS"
Read the full analyst report on "UBS"
Read the full analyst report on "JPM"
Read the full analyst report on "C"
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