Deutsche Bank Reports Strong Q1 Operating Performance As Trading Revenues Soar
Deutsche Bank (NYSE:DB) surprised investors earlier this week by posting a much-better-than-expected performance for the first quarter of the year on the back of an unprecedented revenue run by its trading desks. [1] The bank raised expectations among investors last week when it announced that it would report a profit for the quarter despite incurring legal costs of €1.5 billion, thanks to “near record revenues”. [2] Deutsche Bank was referring to its revenues of €10.4 billion ($11.3 billion) for the quarter – only slightly less than the record €10.5 billion figure for Q1 2011. While the bank’s trading operations gained from the sharp increase in debt and currency trading activity worldwide, as well as from the strong rally in global equity markets, the performance also received a boost from a strengthening of the U.S. dollar.
Deutsche Bank’s results also showed other positive trends. Notably, the bank’s loan provisions increased by just €218 million ($237 million) in Q1 – making it the best quarter in this regard since the economic downturn of 2008. Strong inflows, appreciation in market valuations and positive currency movements also helped the total size of assets under management (AUM) for Deutsche Asset and Wealth Management division reach a record €1.16 trillion at the end of the period.
Deutsche Bank’s strong results for the quarter took a backseat to the announcement of its reorganization plan, though. We have explained the sweeping changes proposed across its operating divisions by the bank as a part of our article A Detailed Look At Deutsche Bank’s New Reorganization Plan ‘Strategy 2020’. We maintain a $36 price estimate for Deutsche Bank’s stock, which is about 10% ahead of the current market price.
See our full analysis for Deutsche Bank
Trading Operations Churn Out Strong Revenues
The importance of Deutsche Bank’s investment banking division to its business model is demonstrated by the chart above, which shows that the business accounts for 56% of its total value (sales and trading, and advisory and underwriting services put together) according to our estimates. Revenues for the bank’s Corporate Banking and Securities business unit were €4.65 billion ($5.05 billion) for the quarter – 15% above the figure for the year-ago period and a good 57% better than that for the previous quarter. In fact, it was the best revenue performance by Deutsche Bank’s investment banking arm since Q1 2012.
While the first quarter of a year normally sees higher trading revenues due to the seasonal nature of the business, Q1 2015 saw unusually high levels of activity in debt and currency markets due to the Swiss central banks unanticipated decision to remove the cap on the Swiss franc. Deutsche Bank’s FICC (fixed-income, currencies and commodities) trading operations raked in €2.64 billion ($2.87 billion) in revenues this time around. At the same time, the equities trading desk benefited from the strong rally in U.S. and European equity markets to post revenues in excess of a billion euros for the first time since Q4 2007. The favorable exchange rate movements over the quarter, no doubt, played an important role in helping the results of the trading desks.
Global Transaction Services Continue Their Strong Run
Deutsche Bank’s transaction services business, which includes the banking giant’s trade finance, securities services and cash management offerings, also gained from a stronger U.S. dollar to post record quarterly revenues of €1.1 billion ($1.2 billion). This represents a 9% improvement quarter-on-quarter and an 11% jump year-on-year. This helped the division report a pre-tax income of €409 million ($445 million) for the quarter – the highest since the record €485 million figure in Q2 2010. Considering the fact that the Q2 2010 figure benefited from a one-time boost to the top line of €208 million, the division’s results this time around are the best operating performance ever in the bank’s history. The total assets for the division swelled to over €117 billion at the end of Q1 2015 – a 10% improvement compared to Q1 2014 as well as Q4 2014.
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- Deutsche Bank reports first quarter 2015 net income of EUR 559 million, Deutsche Bank Press Releases, Apr 27 2015 [↩]
- Deutsche Bank announces litigation costs of approximately EUR 1.5 billion in first quarter 2015, Deutsche Bank Press Releases, Apr 22 2015 [↩]