On Friday, Deutsche Bank announced that it has updated its previously announced results for 2012 to include an additional EUR 0.6 billion provision for litigation related to the bank’s ongoing US mortgage-related litigation and unrelated regulatory investigations. Doing so decreased the bank’s net income by EUR 0.4 billion after taxes to EUR 0.3 billion for 2012. The new provisions also nudge downward the bank’s pro forma, fully loaded Basel III ratio to 7.8% from 8.0%.
An increase in revenue in Corporate Banking & Securities led the group’s results, as the bank benefited from recent Central Bank quantitative easing. Pretax income was EUR 662 million. Sales and Trading revenue, up 15% over the trailing quarter, reached their highest level ever and foreign exchange saw record volumes. Origination and Advisory revenue was up 31% over the trailing quarter as the bank gained share in advisory and as equity origination markets picked up.
Despite this, the unit’s results were unsatisfactory, the cost/income ratio was 78% and pretax return on equity was just 10%. Results in Global Transaction Banking were better and pretax income increased 10% sequentially to EUR 340 million. Revenue increased 6% from the year-ago quarter and 3% from the trailing quarter as volumes increased. The unit’s cost/income ratio remained stable with the trailing quarter at 63% and the capital-light unit reported a 44% pretax return on equity.
The 24% sequential increase in pretax profits in Private and Business Clients, to EUR 492 million, was driven by onetime asset sales but underlying results remained subdued. The unit’s middling 14% pretax return on equity was negatively affected by EUR 71 million of integration costs related to PostBank, and management warned that this expense is likely to increase significantly in the fourth quarter.
During the call, management defended the bank’s leverage at length. Some analysts were sympathetic to some of their arguments–the third of their balance sheet populated by cash, Central Bank deposits, and reverse repos is fairly safe–but not others.
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