Deutsche Bank posts seventh straight quarter of profit, warns of increasing cost pressures

Deutsche Bank posts seventh straight quarter of profit, warns of increasing cost pressures
KEY POINTS
  • The German lender said net profit reached 1.06 billion euros ($1.13 billion) in the first quarter of the year.
  • Analysts had forecast a figure of 1.01 billion euros for the three-month period, according to data from Refinitiv.
  • James von Moltke, CFO of Deutsche Bank, told CNBC’s Annette Weisbach: “It’s a wall of worries at the moment.”

Deutsche Bank reported Wednesday its seventh consecutive quarterly profit, but warned that the current environment is “challenging” and “cost pressures have intensified.”

The German lender said net profit reached 1.06 billion euros ($1.13 billion) in the first quarter of the year. Analysts had forecast a figure of 1.01 billion euros for the three-month period, according to data from Refinitiv.

“Deutsche Bank is more stable and resilient than it has been for many years. Our figures for the first quarter demonstrate this clearly,” CEO Christian Sewing said in a letter to staff Wednesday. But the German bank noted in its earnings report that the outlook for this year was challenging.

“Despite the uncertainties associated with the war in Ukraine and the remaining challenges associated with the COVID-19 pandemic, we intend to continue executing our strategy in a disciplined manner focusing on improving sustainable profitability by growing revenues in our Core Bank while remaining disciplined on costs and capital; however, the current environment is increasingly challenging, and cost pressures have intensified,” the bank said.

Surging inflation and how central banks might react to that has rattled markets recently, and caused significant uncertainty for businesses including banks. A sudden change in monetary policy could impact banks’ performances.

‘A wall of worries’

James von Moltke, chief financial officer of Deutsche Bank, told CNBC’s Annette Weisbach: “It’s a wall of worries at the moment.”

“There’s a number of different features out there and of course the war in Ukraine dominates because it dominates the news, but it shouldn’t overshadow that there are still some pressures whether supply chains, the Chinese reaction to Covid and other features,” he said.

Other data highlights for the quarter:

  • Revenues rose 1% from a year ago to 7.33 billion euros.
  • Provision from credit losses stood at 292 million euros, compared to 69 million euros a year ago.
  • CET 1 capital ratio, a measure of bank solvency, stood at 12.8% down from 13.7% a year ago.

All of Deutsche Bank’s divisions posted better performances compared to a year ago. In investment banking, fixed income and currencies reported that revenues were higher by 15%.

Commenting on the results, von Moltke added that “these trends are likely continue into the second quarter.”

“There’s still uncertainty in the financial markets and some volatility out there, our goal is to support our clients in this environment,” he said.

Russia exposure

On Mar. 11, Deutsche Bank said it would wind down its Russia operations — a major U-turn compared to its initial stance as war broke out in Ukraine. The German bank said it was joining a host of international peers in exiting the country in response to its invasion of Ukraine and resultant operational restrictions.

As such, Deutsche Bank said it cut its exposure to Russia during the first quarter. Gross loan exposure was reduced by 5% to 1.3 billion euros and net loan exposure decreased 21% to 0.5 billion euros during the quarter. It also said that it is “unreservedly implementing” western sanctions against Russia.

The German lender surprised markets at the end of 2021 with a profit of 145 million euros when investors had estimated a net loss for the last quarter of the year.

Shares moved 5% lower in early European trade Wednesday.

This article was originally published on cnbc.com

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