Dhe Deutsche Bank started the year 2023 better than it did ten years ago. Germany’s largest bank increased its net profit in the first quarter of 2023 compared to the same quarter of the previous year by 8 percent to 1.3 billion euros.
Nonetheless, the Management Board raised the cost-cutting target. The cost base is to be reduced by 2.5 billion euros by 2025 instead of 2 billion euros. This is to be done through “strict hiring restrictions in customer-distant areas”, “targeted job cuts at management levels”, streamlining of the mortgage lending business and further downsizing of the technology center in Russia, as Deutsche Bank announced on Thursday morning.
CEO Christian Sewing was quoted as follows in the press release: “Our results for the first quarter show that our strategy as a global house bank is working for our customers. They underscore that we are on track to meet or exceed our 2025 targets,” said Sewing. He added that Deutsche Bank aims to accelerate execution of its strategy through the additional measures announced today. “We want to save more operational costs than previously planned and use our capital more efficiently in order to increase the distributions to our shareholders and our returns.” They would also want to seize opportunities to increase earnings beyond the previous target. He reaffirmed the payout plans and said he would prepare for further share buybacks later this year.
Board of Directors is downsized
The austerity course does not stop at the board of directors either. The top management body is shrinking from ten to nine members, as Germany’s largest bank announced on Wednesday evening. Christiana Riley, the board member responsible for America, is leaving Deutsche Bank in May, as exclusively reported in advance by the FAZ. Legal Director Stefan Simon will also take on her duties with the aim of improving relations with the US financial regulator. Claudio de Sanctis will take over from Karl von Rohr, who is leaving at the end of October. Rebecca Short, who is responsible for the operational business, also has the task of keeping an eye on the costs of the group.
A year ago, in the first quarter of 2022, Deutsche Bank had achieved a net profit of 1.2 billion euros, at that time the best result since 2013 and the basis for the annual profit of more than 5 billion euros. In the first quarter of 2023, will Deutsche Bank now exceed this figure from the previous year? This question was previously open, analysts surveyed by Deutsche Bank itself had estimated net profit at 1.1 billion euros on average and thus calculated a slight drop in profits. However, the estimates ranged up to a net profit of 1.5 billion euros, so that an increase in profits also seemed possible. This has now occurred with a quarterly net profit of 1.3 billion euros.
Investment banking weak
In the first quarter of 2023, revenues in the capital markets business (investment banking) fell by 19 percent to 2.7 billion euros. This was compensated by other divisions, the total group income grew by 5 percent to 7.7 billion euros. In the first quarter of 2022, investment banking had generated revenue of EUR 3.3 billion, accounting for 45 percent of group income.
The so-called FICC business alone, which means trading in interest rate products, currencies and commodities (which are negligible at Deutsche Bank), contributed 2.8 billion euros in revenue. Of the other banks in the world, Goldman Sachs is probably the only one to have such a dependency on the FICC business in a similar form. The revenues of this American investment bank in the FICC business have now collapsed by 17 percent in the first quarter of 2023. As such, it’s hardly a surprise that Deutsche Bank’s FiCC earnings also fell by exactly the same amount — 17 percent — in the first quarter of 2023.
Deutsche Bank had to pay 473 million euros in bank levies in the first quarter of 2023, compared to 730 million euros in the same quarter of the previous year.
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