Profits at Deutsche Bank’s investment bank almost half in the fourth quarter

Pre-tax profits at Deutsche Bank’s investment banking business almost halved at the end of last year as the division was hit by falling trading revenue, soaring costs and higher provisions for bad loans.

The lender said on Thursday that the investment bank, which generated almost two-fifths of the group’s revenue for the full year, added out a pre-tax profit of € 319m in the fourth quarter, down from € 599m a year earlier. Analysts had expected a profit of € 407m from the unit.

Between October and December, revenue from fixed income and currency trading was 14 per cent lower than a year ago as the pandemic-driven trading frenzy on capital markets eased. At the same time, the division’s payroll costs jumped 30 per cent, pushing up total costs more than a quarter. Loan-loss provisions doubled.

James von Moltke, chief financial officer, was upbeat, telling analysts that last year’s performance “reinforces our confidence in continued business momentum, significantly exceeding our previous 2022 revenue ambitions”.

Shares in Deutsche Bank were up more than 3 per cent in early trading in Frankfurt on Thursday.

Kian Abouhossein, an analyst at JPMorgan, encouraged investors to “look forward, not in the rear-view mirror” as the German lender’s “future is going in the right direction with 2022 maintained targets”. He also praised its budget discipline, pointing out that last year’s accounts were blurred by transformation costs that will drop away in 2022.

“[Deutsche] is actually a rare cost-cutting story when major international banks are announcing ongoing cost inflation, ”he said.

Overall, the bank’s full-year profit in 2021 quadrupled to € 2.5bn, reaching the highest level since 2011. The return on equity rose to 3.4 per cent but was below the bank’s 2022 target of at least 8 per cent.

Deutsche on Wednesday said it would resume dividend payments worth € 400m this year. It will also buy back € 300m of shares, representing just above 1 per cent of its market capitalization. Christian Sewing, chief executive, shelved the dividend in 2019 when he announced a radical restructuring plan that will cost the bank almost € 9bn in restructuring expenses by 2022.

“We are delighted to be resuming capital distributions to our shareholders as we promised in the summer of 2019,” Sewing said in a statement, adding that the share buybacks and the dividend were the first steps in delivering his promise to hand back € 5bn to investors.

Deutsche’s core tier-one equity ratio, a critical indicator of balance sheet strength, fell 0.4 percent points to 13.2 per cent of risk-weighted assets at the end of the year.