Deutsche Bank (NYSE:DB) reported lukewarm earnings figures for the first quarter of the year earlier. While the bank’s overall performance was better this quarter than in the last quarter of 2011, the numbers are well below those for the year-ago period.  The bank also missed analyst estimates due to a charge of €257 million ($340 million) from its Actavis debt disposal (see Watson-Actavis Deal: Throws Deutshe Bank For A Loop) and a €210 million ($380 million) litigation-related charge. Trading operations showed the most notable improvement with an almost single-handed boost to the bottom line coming from the fixed-income trading unit. However, the fact that its U.S.-based competitors Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) reported higher growth in trading revenues leads us to believe that Europe’s shaky economy likely held back the largest German bank.
We reiterate our $49 price estimate for Deutsche Bank’s stock, which is about 10% above the current market price.
The Improvement in Debt Trading Markets Clearly Helped
Deutsche Bank reported dismal results over the second half of last year, almost completely because of the inability of its debt & equity trading units to generate revenues in the extremely volatile market conditions – a fate shared by all major banks. After all, the bank’s trading operations are its single most valuable division, contributing to a third of its value according to our analysis.
And the improvement in capital markets clearly rubbed off on Deutsche Bank’s figures, with the bank roping in €4.1 billion ($5.4 billion) from trading operations. Of this, fixed-income trading generated €3.4 billion ($4.5 billion) over the quarter – well over the €1 billion ($1.3 billion) for Q4 2011.
It must be mentioned here that Deutsche Bank expects a not-so-optimistic outlook for trading operations over the second quarter. The bank revealed that the markets started retracting over the month of April, which it added would end up dragging down results for the upcoming period.
A Slacking Asset Management Business Raises Concerns
Deutsche Bank’s asset management business showed an 8% decline in its revenues for the quarter as compared to both Q1 2011 and Q4 2011. More importantly, this decline comes after a marked recovery in performance for the division over the last quarter of the year. The division reported a €10 billion ($13 billion) decline in assets under management for the period – a rather unusual outflow for a period which witnessed an improvement in the global economy.
We believe the ongoing talks about the sale of Deutsche Bank’s Asset Management business has resulted in customers being more cautious – not a good sign for the bank considering the fact that the sale is already being negotiated at a considerable discount (see Deutsche Bank’s Asset Management Rumored $2 Billion Sales Price Looks Too Low).Notes:
- Deutsche Bank reports first quarter 2012 net income of EUR 1.4 billion, Deutsche Bank Investor News, Apr 26 2012 [↩]