Deutsche Bank CFO Weakens Revenue Goal Two Months Into Plan

(Bloomberg) -- Deutsche Bank AG Chief Financial Officer James von Moltke softened the lender’s mid-term revenue target just two months after setting it.

The company now expects revenue of 24 billion euros ($26.6 billion) to 25 billion euros in 2022, von Moltke said at the Barclays Global Financial Services Conference in New York Monday. That compares with a goal of about 25 billion euros announced when the bank presented its new strategy in early July.

The economic environment has become “more fragile” since then, von Moltke said. “We planned for something between 24 and 25 billion” euros in revenue, he said. “We think that remains achievable, but we’re obviously facing a headwind from interest rates.”

Chief Executive Officer Christian Sewing this summer unveiled the lender’s most sweeping restructuring in recent history, shuttering equities trading and promising to cut a fifth of the workforce over the next few years. But analysts are skeptical the bank will achieve a target of growing its core businesses by an average of 2% per year, after the outlook for the economy clouded over and expectations for higher interest rates reversed.

To offset those headwinds, Deutsche Bank already put some assets back on its books that it had initially wanted to get rid off. That move added 550 million euros to core revenue, giving it a “slightly better starting point,” von Moltke said previously. Together with the softening of the revenue target, Deutsche Bank now effectively needs to add just 600 million euros in revenue to make the 2022 goal, compared with a much more ambitious 2.2 billion euros when its plan was first announced.

The CFO also gave a somewhat positive outlook for the current quarter, saying that planned asset sales are “well on track.” The more stable core businesses -- the corporate bank, the retail bank and asset management -- have continued to grow in the quarter, albeit at a slow rate, he said. The exit from equities trading so far has had less of an impact on other trading businesses than initially expected, he said.

Deutsche Bank climbed 1.1% at 12:20 p.m. in Frankfurt trading. It’s up 6.4% this year after rebounding from a record low last month.

The firm and others have urged the European Central Bank to provide some relief from its negative interest rates when it meets gain on Thursday. The ECB has used negative rates on deposits for five years to encourage savers to spend, but the policy has hurt Europe’s banks, which are paying more than 7 billion euros a year to deposit cash with the central bank.

Deutsche Bank’s turnaround plan initially assumed that three-month interest rates would rise above zero in 2022, though that prospect is now more distant, von Moltke said.

“That interest rate improvement would have delivered about 600 million euros of revenue,” he said. “At least that much revenue is at risk if there isn’t a recovery of rates to the types of levels we were talking about. The task from here is to offset as much as we can of the rate headwind.”

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Ross Larsen

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