Deutsche Bank Earnings: The Bank Withstood Its First True Test This Quarter

First-quarter profit before tax at Deutsche Bank DBK of EUR 1,852, which was up 12% versus the same period a year ago, was good. The bank showed a good performance in the corporate bank and the private bank, while the investment bank recovered from a poor performance in the last quarter of 2022. Return on tangible equity of 8.3%, a 13.6% common equity Tier 1 ratio including a 250-basis-point buffer above minimum requirements, and shareholder distributions including share buybacks potentially in 2023, are a show of strength after a quarter that we believe the Deutsche Bank of just a few years ago may not have withstood. We maintain our EUR 12.90 per share fair value estimate and no-moat rating.

The corporate bank and private bank saw a strong tailwind from higher net interest margins supported by higher interest rates in Europe. Income of the two segments grew 35% and 10% respectively, capitalizing on the shift in rates. However, the bank flagged that it will have to pass on some of the gains to depositors over the coming quarters, a dynamic we are seeing across all our banks we cover to a varying degree depending on how far along the relevant central bank is in its rate-hiking cycle.

The investment bank showed a good performance considering activity levels in primary and secondary markets and performance at the end of last year. Income declined 21% on a year-over-year basis, but was up 61% versus the fourth quarter 2022.

Provisions for credit losses of EUR 372 million, or 30 basis points of average loans, was at the top end of the full-year guidance range. The bank highlighted some idiosyncratic issues in the private bank driving loan loss provisions in the quarter.