Morningstar | DB Updated Forecasts and Estimates from 27 Jul 2018
No-moat Deutsche Bank reported net income of EUR 521 million for the first half of 2018. Reported net income was stronger than our expectations, mainly owing to better-than-expected interest income and lower-than-anticipated loan losses. We increase our full-year net income estimate to EUR 946 million from EUR 414 million previously. The increase may seem drastic, but we remind investors that Deutsche Bank has significant operational leverage due to its high cost/income ratio, which significantly magnifies any changes in revenue or loan-loss provisions. We maintain our fair value estimate at EUR 15, along with our no-moat rating.Revenue in corporate and investment banking (still the largest segment despite plans to scale back on the U.S. rates sales and trading business) came in 7% below last year, owing to lower volumes, unfavourable foreign exchange movements, and client perimeter reduction. In the context of the low-interest-rate environment, the private and commercial bank's net revenue came in slightly lower than last year, at 8%. Growth in Germany was more than offset by weaknesses in the international division and in global wealth management. Revenue in the asset management business decreased by 14%, mainly due to businesses exited during 2017, negative flows, margin compression, lower performance fees, and management fees.
On a cost basis, compensation costs in the first half of the year came in flat, with higher variable expenses more than offset by headcount reductions. The bank reduced its workforce to 95,400, with the corporate and investment banking segment reducing its front office employees by 1,000 in the second quarter. Taking into account the sale of the Polish retail operations, the company is targeting to reach a headcount reduction of 9,300 by end of the year.
Deutsche Bank is a holding company acting as an international financial service provider. Co. offers a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world. Co. has operations or dealings with existing or potential customers in most countries in the world. Co. is organized into the following six corporate divisions: Global Markets (GM); Corporate & Investment Banking (CIB); Private, Wealth & Commercial Clients (PW&CC); Deutsche Asset Management (Deutsche AM); Postbank (PB); and Non-core Operations Unit (NCOU).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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