The past two years have gone well for Germany’s largest bank.
(Photo: AP)
Frankfurt Deutsche Bank did one last year Net profit of 5.02 billion euros achieved. This is an increase of 159 percent over the previous year, as the institute announced on Thursday in Frankfurt. The after-tax return on tangible equity was 9.4 percent. This is the best result for Germany’s largest bank in 15 years. The bank announced that it would raise its dividend to 30 cents per share.
With the result, Germany’s largest credit institution has clearly exceeded the central goal of CEO Christian Sewing, to achieve an after-tax return on tangible equity of eight percent by the end of 2022. Analysts had recently expected an average return of 7.8 percent.
After the failure of the merger with Commerzbank in July 2019, CEO Christian Sewing presented a new strategy for Deutsche Bank. The key point was the exit from stock trading and some other areas of investment banking. For this, Sewing wanted to strengthen the “more stable” business areas such as private and corporate customer business.
The bank later put some of the promises made back then into perspective, but always stuck steadfastly to its return target. “The return target of eight percent is our north star, the central orientation for the entire bank and the entire restructuring,” CFO James von Moltke once said in an interview with the Handelsblatt.
For a long time, analysts had not believed that the bank would even come close to this goal. Just a year ago, the average analyst estimate was just 5.5 percent. Even last August, the yield forecasts were still well below this mark at 6.6 percent.
Sewing has also kept another promise: Despite the massive strategic restructuring of the group, the bank managed without a capital increase.
It is a mixture of their own successes and favorable circumstances that have helped the institute, especially in the past two years: the corona pandemic, the restructuring of the supply chains and later the energy crisis have led to an enormous need for credit at many companies in the past two years , while at the same time the state aid measures prevented a broad wave of insolvencies in the German economy. Insolvencies would have led to massive loan defaults.
Good money could also be earned on the capital market longer than the bank had foreseen in 2019: Because the unsettled world situation led to turbulence on the capital markets, against which many companies and investors wanted to protect themselves: bond and currency traders made good money with hedging transactions.
Sewing’s promise also included reducing the investment bank’s dominance of profits and earnings in exchange for strengthening stable business areas such as private and corporate banking and wealth management. The bank got out of stock trading and also cut other unprofitable activities in investment banking.
Even with stable business, the bank earns money again
For a long time, this calculation did not seem to work out. The picture has now changed. The investment bank’s pre-tax profit of EUR 3.5 billion is still higher than in all other divisions. However, corporate and private customer banks are now earning more with a total of 4.1 billion euros.
Last but not least, the sharp about-face in monetary policy has contributed to this development. On the one hand, this eliminated the negative interest rates imposed by the European Central Bank (ECB), and on the other hand, banks have been able to earn more money with loans to private and corporate customers since lending rates have risen again.
On the other hand, the institute has put other central goals into perspective, such as the cost targets: Originally, the absolute costs were to fall to 17 billion euros by the end of 2022. The bank canceled these plans last July. One of the reasons for this was that she was able to do more business than she had hoped and, above all, wanted to increase her earnings.
Rising earnings should offset most, but not all, of the higher expenses. Because the institute also moved away from its relative cost target – the bank originally aimed to spend only 70 cents for every euro earned – and only set itself the goal of achieving an order-income ratio in the low to medium 70 percent range . With a cost/income ratio of 75 percent, that was just about the case. So the bank spent 75 cents to earn one euro.
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