Deutsche Bank swings back to profit in the third quarter, beating expectations

Deutsche Bank on Wednesday beat expectations in its return to profit in the three months to September, after snapping its 15-quarter profit streak in the second quarter.  

Net profit attributable to shareholders came in at 1.461 billion euros ($1.58 billion) over the third quarter, compared with the 1.047 billion euros anticipated in a LSEG poll of analysts.

Revenue hit 7.5 billion euros, against a LSEG analyst forecast of 7.338 billion euros.

Other third-quarter highlights included:

• Profit before tax of 2.26 billion euros, up 31% year-on-year.
• Provision for credit losses of 494 million euros, up from 245 million euros in same quarter of last year.
• CET 1 capital ratio, a measure of bank solvency, was 13.8%, up from 13.5% in the second quarter.

• Return on tangible equity reached 10.2% (or 7.6% if adjusted for the lender's litigation provisions), up from 7.3% year-over-year.

Germany's largest lender had posted a 143-million-euro loss in the second quarter, at the time announcing it would not embark on a second share buyback program this year and factoring in a provision for its long-running lawsuit over its acquisition of its Postbank division. Some 60% of plaintiffs in the litigation, pillared on allegations that Deutsche Bank underpaid for its purchase, have since settled with the German bank in August.

The partial release of 440 million euros of litigation provisions in the third quarter helped boost profit, Deutsche Bank said, and the lender has now guided it has applied for a share repurchase — a step previously stalled by the Postbank legal proceedings.

"We will continue on our path of profitable growth and exceed our original goals for capital distributions to shareholders," Deutsche Bank CEO Christian Sewing told CNBC's Carolin Roth Wednesday.

The lender also noted revenues from its investment bank divisions rose to 2.5 billion euros, up 11% over the same period of last year, flagging growth in its fixed income and currencies unit. Asset management net revenues were 660 million euros, also 11% higher year-over-year.

The performance of European lenders has been fortified by a spate of stock buybacks and dividends in recent years — and now faces the pressure of delivering earnings growth to keep pace with the profitability of U.S. peers in an environment of declining interest rates, after the European Central Bank began loosening monetary policy over the summer.

"Looking back, while the industry has reduced costs and kept credit quality high, the improvement in returns since 2021 appears to be largely owed to rising interest rates," analysts at McKinsey warned in the consulting firm's Global Banking Annual Review 2024, flagging that, in order to maintain current ROTE (return on tangible equity) margins, banks would need to trim costs approximately 2.5 times as fast as revenues fall.  

Deutsche Bank in February embarked on a sweeping cost-saving push set to lighten the lender's headcount by 3,500 roles by 2025 — a figure that includes 800 cuts announced in the previous year. The bank said its full-time workforce was now 90,236, after adding 766 staff during the third quarter.

Market participants are hotly surveying the broader banking sector, after Deutsche Bank distanced itself from the prospect of a long-anticipated merger with domestic rival Commerzbank, which now faces a potential acquisition by Italy's Unicredit.

Other European banks are also due to post third-quarter earnings over the coming days, with Barclays out on Thursday and Swiss giant UBS reporting next week.