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Deutsche Bank smashes fourth-quarter profit forecast as rising interest rates bolster revenue

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Deutsche Bank

A statue is pictured next to the logo of Germany’s Deutsche Bank in Frankfurt, Germany September 30, 2016.

Kai Pfaffenbach | Reuters

German Bank Thursday reported its 10th consecutive quarter of earnings, supported by higher interest rates and favorable market conditions.

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Deutsche Bank announced a net profit attributable to shareholders of 1.8 billion euros ($1.98 billion) for the fourth quarter, raising its annual net profit for 2022 to 5 billion euros, an increase of 159 % compared to the previous year.

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The German lender nearly doubled a consensus estimate among analysts polled by Reuters of 910.93 million euros in net profit for the fourth quarter and beat a projection of 4.29 billion euros for the year.

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In 2019, Deutsche Bank launched an extensive restructuring plan to cut costs and improve profitability, which involved winding down its global equity sales and trading operations, downsizing its investment bank, and cutting around 18,000 jobs by the end of 2022.

The full-year result marks a significant improvement from the 1.9 billion euros reported in 2021, and CEO Christian Sewing said the bank had been “successfully transformed” over the past three-and-a-half years.

“By refocusing our business around our core strengths, we have become significantly more profitable, better balanced, and more profitable. In 2022, we demonstrated this by delivering our best results in fifteen years,” Sewing said in a statement Thursday.

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“Through the disciplined execution of our strategy, we have been able to support our clients in very difficult conditions, proving our resilience through strong risk discipline and sound capital management.”

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After-tax return on average tangible equity (RoTE), a key metric identified in Sewing’s transformation efforts, was 9.4% for the full year, compared to 3.8% in 2021.

Deutsche also recommended a dividend to shareholders of 30 cents per share, up from 20 cents per share in 2021, but has not announced a share buyback at this stage.

“With respect to share buybacks, given the uncertainty in the environment we are seeing today, as well as some regulatory changes that we would like to see both the timing and the magnitude, we We’re holding off for now. We think that’s the prudent action to take, but we intend to review that,” Chief Financial Officer James von Moltke told CNBC on Thursday.

He added that the bank would likely reassess the outlook in the second half of this year and reaffirmed Deutsche’s target of 8 billion euros in capital distributions to shareholders through 2025.

Here are the other quarterly highlights:

  • Provisions for loan losses amounted to 351 million euros, compared to 254 million euros in the fourth quarter of 2021.
  • The Common Equity Tier 1 (CET1) ratio – a measure of bank solvency – stood at 13.4%, down from 13.2% at the end of the previous year.
  • Total net revenue was €6.3 billion, up 7% from €5.9 billion for the same period in 2021, but slightly below consensus estimates, bringing the annual total to 27.2 billion euros in 2022.

Deutsche’s corporate banking unit reported net interest income growth of 39%, helped by “higher interest rates, strong operating performance, business growth, and favorable currency movements “..”

Some of the tailwinds have been offset by a decline in transactions that have affected the entire industry in recent months.

“The fourth quarter slowed down a bit for us in November and December, but was still a record quarter in our FIC (fixed income and foreign exchange) business for a fourth quarter, 8.9 billion [euros] for the full year,” CFO von Moltke told CNBC’s, Annette Weisbach.

“We are pleased with this performance, but … it is slightly below analysts’ expectations and our year-end guidance.”

He said January had been a month of strong performance for the bank’s business divisions as market volatility persisted.

“It encourages us that our general view, which was that volatility and conditions in macro businesses would decrease over time, but would be replaced if desired from a revenue perspective with increasing activity in micro businesses. areas like credit, mergers and acquisitions, equities, and also debt issuance,” he said.

“We see this still intact as a thesis of what 23 will look like.”

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