EUR 850.00 For Business Accounts Only

Morningstar | Deutsche Reports Uninspiring 3Q Results In Line With Our Expectations

Third-quarter results at Deutsche Bank were underwhelming although not unexpected. On the top line, performance was weak relative to the year-ago quarter, and Deutsche continues to lag year-to-date comparisons across segments. Deutsche pointed to low volatility and reduced client activity in its investment banking division, as well as one-offs in its private and commercial bank and asset management division, as the culprits. Total net revenue declined to EUR 6.2 billion from EUR 6.8 billion in the third quarter last year, while expenses improved. In sum, net income declined to EUR 229 million for the quarter versus EUR 649 million last year, but year-to-date performance is in line with our full year expectations of EUR 867 million.

While lower revenue in a scenario of right-sizing is neither necessarily detrimental nor unexpected, we fail to see an improvement in the underlying business. We acknowledge that Deutsche’s restructuring program is well under way, having achieved significant headcount reductions in its corporate and investment banking segment already, but most of the work still lies ahead. The integration of Postbank into Deutsche’s private and commercial bank is another large task occupying management and carries plenty of execution risks, potentially chipping away at the targeted synergies of EUR 900 million. Additionally, we are less optimistic on the size of achievable cost savings in the long run. We now forecast a less pronounced improvement in the cost/income ratio in the long run to 85% on average from 80% previously. As a result, we lower our fair value estimate to EUR 12/$13.80 per share from EUR 15/$17.70. We maintain our no-moat and negative trend ratings.