Deutsche holds firm in turbulent markets

Deutsche Bank continues to tough it out. The German lender’s pre-tax return on equity fell to just 7.2 percent in the third quarter. That largely reflects difficult trading conditions across the whole investment banking industry.

But though the turmoil did not leave Deutsche unscathed, it did gain some market share. Despite the hit to returns, the bank says it should have a 9.1 percent core Tier 1 equity ratio by the middle of next year. That – for the time being at least – means it can avoid raising equity that would depress returns even further.

Overall, Deutsche’s corporate banking and securities division – which includes investment banking advisory work as well as fixed income, currencies and commodities (FICC) and equities trading – generated a pre-tax return on equity of just 2 percent. Even adding back a one-off VAT charge of 310 million euros, the division would have struggled to make its cost of equity in the period.

But results on Oct. 25 are not all bad. Because the biggest players earn the highest returns, Deutsche’s wants top-3 trading positions across its FICC and equities businesses. Deutsche sits in that top bracket in its FICC business. Yes, revenue here fell 36 percent fall in the quarter. But some rivals did far worse. Swiss lender UBS, which also published results on Oct. 25, saw revenue in that division tumble 72 percent. Deutsche looks relatively resilient in equities sales and trading as well.

Deutsche also derives useful support from its operations outside investment banking. Last year’s acquisition of Postbank beefed up its retail and commercial banking operations. Though pre-tax income from what Deutsche calls “classic banking” fell 32 percent quarter-on-quarter, it increased 27 percent year-on-year. Delinquent loans in retail and commercial banking, moreover, were stable.

Funds within asset and wealth management dipped only slightly despite the sharp sell-off in equity markets. Quarter-on-quarter, pre-tax profit fell 18 percent.

No one can afford to be complacent about the health of any of Europe’s banks just now. But Deutsche’s position within the euro zone’s strongest economy underpins its fortunes. And on the strength of these results, it is coping.