German bank On Wednesday, it crushed market expectations for the third quarter amid higher interest rates and turbulent market trading.
The bank reported net income of €1.115 billion ($1.11 billion) for the quarter. Analysts had predicted a net profit of 827 million euros, according to data from Refinitiv.
“We see the benefit of interest rates in our corporate bank and our private bank, mainly those with large deposit books, and we see our FIC. [fixed income and currencies] It’s a business that manages this environment extremely well, Deutsche Bank CFO James von Moltke told CNBC’s Joumanna Bercetche.
CEO Christian Sewing said in a statement that the bank is “on the right track” to meet its 2022 goals. In the medium term, the bank said it aims to increase the average return on tangible equity above 10% by 2025.
Here are other highlights from the quarter:
- Revenues increased by 15% from a year ago to 6.92 billion euros.
- The Joint Equity Tier 1 ratio, a measure of bank solvency, rose to 13.3% from 13% a year ago.
Deutsch Bank reported earnings for the third quarter.
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Looking at the bank’s individual divisions, investment banking revenues were up 6% from a year ago. Specifically, revenues in Fixed Income and Currencies increased 38% over the same period, helping to offset poor performance in Credit Trading.
In that regard, the bank said its Sourcing and Advisory revenues fell 85% year-on-year, indicating lower deals, as with some of its US peers.
However, Corporate Banking saw the largest revenue growth of all divisions, up 25% from a year ago.
Deutsche Bank said it further reduced Russian credit risk during the same period. The bank is cutting off relations with Russia after Moscow invaded Ukraine for no reason. As a result, the additional contingent exposure decreased to €0.2 billion from €0.6 billion at the end of the second quarter.
Higher interest rates for longer?
The German bank reported higher provisions compared to the same quarter of the previous year. They reached €350 million at the end of the third quarter, compared to €117 million at this time of last year.
The bank said these reflect “more challenging macroeconomic forecasts”. Speaking to CNBC, von Moltke reiterated his expectation of a recession in 2023 in Germany and the wider European market.
Despite weak growth prospects, Deutsche Bank believes the European Central Bank will continue to raise interest rates. Currently, the main ECB rate stands at 0.75%.
“We think terminal rates are starting to come closer to our view now, and that will probably be 3% for the ECB and 5% for the Fed, maybe 5.5%. I think this is important because the critical Inflation is under control and so we fully support the actions of the central bank,” he said.
Deutsche Bank’s shares have lost nearly 17% so far this year. The German lender beat expectations with a profit of 1.046 billion euros in the second quarter.