LONDON, April 27 (IFR) - Deutsche Bank’s debt trading arm
underperformed US rivals in the first quarter of the year,
producing an 11% rise in revenues to €2.29bn, which was below
the 22% average increase that competitors achieved.
FX was singled out as a weak spot compared with rates and
Still, chief executive John Cryan was optimistic that
clients scared off in the final quarter of 2016 by the bank’s
capital uncertainties had started to return in the prime
brokerage space. However, the overall equities trading figures
for the first quarter were still 10% down year-on-year at €674m,
worse than the broadly flat revenues that US houses reported.
“Revenues especially in global markets were below
expectations as well as underperforming US peers,” said Kian
Abouhossein, analyst at JP Morgan. “We are rather disappointed.
This should normally be the best quarter in terms of revenue
performance and markets conditions were solid.”
“Our prime finance business began to recover from a tough
fourth quarter,” said Cryan. “Client engagement is strong, asset
flows are returning across the bank and activity is picking up.
Our cost-cutting efforts are starting to pay off, while we have
reduced complexity significantly.”
Deutsche is rolling its global markets’ businesses into its
corporate and investment bank so the secondary trading
activities can sit alongside the primary and advisory bankers.
The latter activity was disappointing too, with revenues down
fractionally at €1.81bn.
The bulk of the current CIB consists of transaction banking.
Here revenues dropped 5% to €1.05bn as the bank pulled out of
funding institutional cash business in particular in certain
geographies such as Latin America, where it now only retains a
presence in Brazil.
Like its peers, Deutsche experienced a strong revival in
equity capital markets and debt capital markets underwriting,
compared with the very quiet period a year ago. DCM revenues
rose by a third year-on-year to €390m and ECM bounced back, up
more than double to €153m as Deutsche advised Snap on its IPO
and UniCredit on its €13bn rights issue.
Advisory remained tough for the bank, with fees down 24% at
€114m. Quarterly revenues are lumpy in this area but they would
have been far worse if the US$7.8bn divestments by AB InBev of
SAB Miller’s breweries in central and Eastern Europe to Asahi
had not completed on March 30. Deutsche advised InBev alongside
Lazard on these deals.
The bank has seen departures in recent months in this and
other parts of its CIB where it wants to expand, not helped by
changes in bonus policies.
Cryan said the pipeline of deals was strong, indicating he
will not deviate from his new strategy, laid out in March, to
make both sides of the newly merged investment bank work
together for existing Deutsche clients, rather than focusing on
selling products to new clients. A major deal is the proposed
€4.1bn sale of German pharma group Stada to Bain and Cinven.
However, in order to bolster its capital position in the
wake of its US$7.2bn penalty from the US Department of Justice
for misleading investors over residential mortgage-backed
securities, as well as other settlements, the bank had to raise
€8bn from shareholders.
The capital raise was completed in early April and gives the
bank a common equity Tier 1 ratio of 14.1%, based on €358bn of
risk-weighted assets at the end of March. But analysts are
concerned this will dilute earnings and returns that the bank
can achieve. The group is now retaining the low-margin Postbank.
Deutsche is also planning to raise €2bn from the partial IPO
of its asset management business within two years. However, this
is its most profitable arm and the bank, like Credit Suisse with
its Swiss Universal Bank, has not ruled out keeping the division
and raising funds via alternative means.
Group revenues fell 9% to €7.3bn, primarily because of more
than €700m of negative credit valuation adjustments compared
with a year earlier.
The bank’s shares fell €0.53, or 3.1%, on Thursday morning
(Reporting by Christopher Spink)