Deutsche Bank Caps Top Year for Debt Trading With 17% Gain

Deutsche Bank AG closed out a bumper year for trading with a result that beat most Wall Street peers, handing Chief Executive Officer Christian Sewing the first annual profit in six years as he leans increasingly on the investment bank.

Revenue from fixed-income trading rose 17% to 1.38 billion euros ($1.66 billion), Germany’s largest lender said Thursday, confirming a Bloomberg News story earlier this week. That compares with an average increase of about 10% at the five biggest Wall Street banks. For the full year, Deutsche Bank posted a net income attributable to shareholders of 113 million euros, the first annual profit by that measure since 2014.

“We did see the positive momentum continuing,” Chief Financial Officer James von Moltke said in a Bloomberg TV interview. In the trading business, “we’ve seen that momentum carry through to the first few weeks of 2021, which is encouraging for us in terms of the outlook.”

Deutsche Bank Caps Top Year for Debt Trading With 17% Gain

Sewing, who refocused Deutsche Bank in 2019 on its historical strength in corporate lending, has seen his strategy turned upside down over the past year as a return of volatility revived the securities unit while negative interest rates depress traditional banking. While he quit equities trading as part of his revamp, the firm is now more reliant on the fixed-income business than it was a decade ago.

“It’s been a gift, frankly, to them that capital markets have held up as well as they have,” Matthew Fine, a portfolio manager at Third Avenue Management, said by phone before earnings were released. “Revenue has not deteriorated markedly and they have actually been able to build capital through this period.”

Deutsche Bank rose 1.1% at 9:05 a.m. in Frankfurt trading. The stock is the best performer of the large European investment banks over the past 12 months, though it remains about 90% below its 2007 peak.

Fourth-quarter highlights

(in euros unless otherwise indicated)

4Q 2020

actual

4Q 2020

estimate

4Q 2019

actual

Group revenue5.45b5.44b5.35b
Credit provisions251m380m247m
Pretax profit175m-22.4m-1.29b
CET1 ratio (%)13.6%13.2%13.6%

Net income for the quarter came in at 51 million euros, compared with a 1.6 billion-euro loss a year ago. A key measure of capital strength increased, beating analysts’ estimate, and the bank said in a presentation that it saw “robust revenue momentum” going into 2021.

The boost from trading has kept Sewing’s turnaround plan largely on track even as provisions for bad loans jumped in the wake of the Covid-19 pandemic and the bank’s other businesses struggled to grow. The bank set aside 251 million euros for credit losses in the quarter, bringing the total for the year to 1.79 billion euros.

Deutsche Bank Caps Top Year for Debt Trading With 17% Gain

Of the firm’s other operating businesses -- the corporate bank, private bank and asset management -- none were able to increase revenue in the fourth quarter. The CEO in December cut the forecast for the corporate bank and lowered the group revenue target slightly, to 24.4 billion euros from 24.5 billion euros.

On a more positive note, the bank’s asset manager DWS pulled in 13.6 billion euros of investor cash in the fourth quarter, completing its best year for inflows since it was listed and bringing funds overseen for clients to 793 billion euros. The unit posted a higher pretax profit for the full year as cost cuts outpaced declining revenue.

Deutsche Bank’s results contrast with the performance of smaller cross-town rival Commerzbank AG, which doesn’t have a large trading operation to lean on. Commerzbank late Wednesday announced that it will post a preliminary loss of almost 2.9 billion euros for 2020 after taking big writedowns tied to the pandemic and booking restructuring charges for a massive cost-cutting program.

Even though Deutsche Bank’s fixed-income unit is smaller than those at most U.S. peers, which averaged $2.46 billion of revenue in the quarter, it contributes a larger share to the group’s top line, according to Bloomberg Intelligence.

The bank was considering to raise average bonuses for its traders by 10%, Bloomberg News reported in December, but the final number may now be even higher, a person familiar with the matter has said.

“We’re obviously very mindful” of the recommendation from the European Central Bank to exercise extreme moderation on bonuses, von Moltke said. “We of course need to balance that with what was a strong performance year and the need to compensate people for that,” he said, calling the decision “an ongoing process.”

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