Deutsche Bank AG reported the biggest gain in fixed-income trading in almost eight years as a market rally bolstered chief executive officer Christian Sewing’s turnaround efforts for a third straight quarter.
Income from buying and selling debt securities in the second quarter rose 39 percent from a year earlier, offsetting weaker revenue in asset and wealth management, the lender said yesterday.
While its traders could not quite keep up with the five biggest Wall Street banks, which roughly doubled fixed-income revenue, their gain was the biggest since the third quarter of 2012. Revenue from advising on stock and bond sales, as well as mergers, increased 73 percent.
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Sewing said that his overhaul of Germany’s largest lender, which he unveiled a year ago, was on track or ahead of plan, while cautioning that the trading environment would probably be less supportive in the second half of the year.
“We do expect a normalization” in the trading environment, Deutsche Bank chief financial officer James von Moltke said in an interview with Bloomberg TV. “The investment bank outperformance in the first half has essentially financed the corona-related impact” on earnings.
Even with the expected slowdown, the bank lifted its revenue outlook for the full year slightly, predicting that the top line would be “essentially flat” rather than down.
Deutsche Bank shares rose 2.9 percent at 9:03am yesterday in Frankfurt trading. The support from the trading boom helped fuel a 19 percent rally in the shares this year, the best performance of the large European banks.
Other Deutsche Bank units have struggled as negative interest rates erode income from lending, while market volatility hurts asset and fees for overseeing them. Its asset management unit and retail banking saw lower revenue in the second quarter.
On the positive side, the bank saw inflows of 8.7 billion euros (US$10.2 billion) at its DWS asset manager in the quarter, better than analysts had estimated.
Core bank revenue, which includes only the businesses that Deutsche Bank is keeping in its overhaul, rose 6 percent, driven by the investment bank.
The transaction bank — a centerpiece of Sewing’s effort to wean the lender off its reliance on trading — saw a 4 percent increase, reflecting higher credit loss recoveries and a portfolio rebalancing.
The bank set aside 761 million euros for bad loans, roughly in line with a guidance of about 800 million euros it had given last month.
Borrowers who had drawn down credit facilities during the early days of the pandemic have already started to pay them back or refinance, boosting the bank’s main measure of capital strength — the common equity Tier 1 ratio — to about 13.3 percent at the end of last month from 12.8 percent three months earlier, Deutsche Bank said last week.
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