FIC business to normalize after strong performance in 2020
Deutsche Bank, Germany’s largest lender, said on Thursday that it expects a “normalization” of its fixed income and currency (FIC) trading business in the third quarter of 2023, after a strong performance in the same period last year. The FIC business makes up a big chunk of the investment banking revenue at Deutsche Bank.
The bank’s finance chief James von Moltke said that the FIC business was facing a “tough comparison” with the third quarter of 2020, when the bank benefited from high market volatility and client activity amid the coronavirus pandemic. He said that the FIC revenue in the third quarter of 2023 would be “down meaningfully” from the previous year, but still above the pre-pandemic levels of 2019.
Von Moltke also said that the bank was seeing a “healthy” pipeline of deals in its corporate and investment banking division, which includes advisory, financing and underwriting services. He said that the bank was confident of achieving its revenue and profitability targets for 2023.
Deutsche Bank shares rise despite lower trading outlook
Despite the lower trading outlook, Deutsche Bank shares rose by more than 2% on Thursday, outperforming the European banking sector. Analysts said that the bank’s diversified business model and its progress in cutting costs and improving efficiency were supporting its share price.
Deutsche Bank has been undergoing a major restructuring since 2019, when it announced plans to exit some unprofitable businesses, slash 18,000 jobs and reduce its risk-weighted assets. The bank aims to achieve a return on tangible equity (ROTE) of 8% by 2023, up from 4.4% in 2020.
The bank has also been strengthening its capital position and reducing its reliance on wholesale funding. It reported a common equity tier 1 (CET1) ratio of 13.7% at the end of June 2023, well above its regulatory requirement of 10.6%. It also reduced its leverage exposure by 8% year-on-year to €1.06 trillion.
Deutsche Bank faces challenges from low interest rates and regulatory scrutiny
Despite its positive momentum, Deutsche Bank still faces some headwinds from the low interest rate environment and the regulatory scrutiny over its compliance and governance issues. The bank’s net interest income, which accounts for about half of its total income, fell by 11% year-on-year in the first half of 2023, due to the negative impact of low and negative interest rates on its lending and deposit margins.
The bank is also under investigation by several authorities around the world for its involvement in various scandals, such as money laundering, tax evasion, market manipulation and sanctions violations. The bank has set aside €1.2 billion for litigation reserves as of June 2023, but it warned that it could face additional charges or fines in the future.
The bank’s chief executive officer Christian Sewing said that the bank was committed to resolving its legacy issues and improving its controls and culture. He said that the bank was cooperating with the regulators and had invested significantly in enhancing its anti-financial crime capabilities.
