Deutsche Bank (NYSE:DB) reported strong performance figures for the third quarter of the year early this Tuesday on the back of a marked recovery in its fixed-income trading business.  The bottom-line figures for the largest German bank did not show a notable improvement due to €320 million ($415 million) in charges incurred in relation to the large-scale reorganization it announced in mid-September.  The evidently reinvigorated bank showed an improvement in performance across the board with every business unit reporting positive growth over the previous quarter as well as the same quarter last year. Deutsche Bank’s securities division and the asset & wealth management division caught our eye in particular.
We updated our price estimate for Deutsche Bank’s stock from $41 to $46 to reflect the impact of Deusche Bank’s proposed reorganization plan dubbed “Strategy 2015+” on our analysis. The 12% increase in our estimate largely stems from the expected improvement in margins for all the bank’s operating division. Details about the changes can be found in our article, Deutsche Bank Set For Complete Shake-up As Part Of ‘Strategy 2015+.’
Securities Trading Business Vying For Its Former Glory
Deutsche Bank has built a reputation for itself in the securities business over the past decade with the bank being one of the biggest global players in forex and bond trading. Although weak economic conditions have reined in the performance of its trading desk over recent years, the strong figures for this quarter go on to demonstrate Deutsche Bank’s underlying strength in the business. After all, the bank’s Corporate Banking & Securities business which encompasses its investment banking operations used to regularly contributed to over two-thirds of the bank’s total revenues in quarters prior to the global economic downturn – a figure that has largely remained under 50% since.
Deutsche Bank capitalized on the improvement in global debt markets this quarter triggered by growing optimism on recovery plans for the Eurozone, the prospect of a sustained US economic recovery and additional measures taken by the Fed. The bank’s bond-trading business recorded revenues of €2.5 billion ($3.2 million) – a 15% improvement over the figure for last quarter and 67% more than that for the same quarter last year.
Asset & Wealth Management Business Also Emerging From The Shadows
Deutsche Bank’s Asset & Wealth Management Business also saw its fortune turn when after lukewarm performances for four quarters the business reported strong growth in its top-line figures coming from notable growth in its asset base. While revenues grew 10% compared to Q2 2012 and Q3 2011, the size of invested assets grew to their largest ever value of €850 billion ($1100 million) at the end of this quarter.
Deutsche Bank has been looking for buyers for a bulk of its asset management business – comprising of DWS Investments, RREEF, DB Advisors and Deutsche Insurance Asset Management – since late last year. Negotiations with potential buyers fell through because of the considerably low price bids the businesses on the block were demanding (see Deutsche Bank’s Asset Management Rumored $2 Billion Sales Price Looks Too Low). Continued strong performance by the business should draw more attention from interested parties, allowing Deutsche Bank to earn more on the proposed exit.Notes:
- Deutsche Bank reports third quarter 2012 income before income taxes of EUR 1.1 billion, Deutsche Bank Investor News, Oct 30 2012 [↩]
- Deutsche Bank announces strategic and financial aspirations for 2015 and beyond, Deutsche Bank Press Releases, Sept 11 2012 [↩]