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Morningstar | Deutsche Bank Reports Disappointing 1Q Results After Merger Talks Called Off

After Deutsche Bank and Commerzbank officially called off merger talks between the two German lenders, citing cost and execution risks outweighing potential benefits of a combined banking institution, Deutsche Bank is back to square one and off to a bad start. As the group refocuses, to try achieve the profitability of its past, first-quarter results are disappointing. Profits before tax declined to EUR 292 million in the quarter compared with EUR 432 million in the same period of 2018 as revenue generation was weak. The group achieved an 8% cost reduction, determined to offset missing revenue which ultimately fell short by EUR 88 million. Additionally, provisions for credit losses increased in the quarter to EUR 140 million from EUR 88 million in 2018. Net income increased EUR 81 million to EUR 201 million because of lower tax expenses, however return on tangible equity of 1.3% for the quarter is well below management’s target of 4% for the full year. We maintain our fair value estimate of EUR 9.20 per share, no economic moat, and negative moat trend rating.

Corporate and investment banking had a weak quarter because higher net interest income in global transactional banking could not offset lower revenue from origination and advisory and sales and trading. Again, lower compensation and general expenses were lower, although not low enough to make up for the weak top-line performance. In sum, the segment returned a loss of EUR 88 million compared with EUR 203 million in the first quarter of 2018.

Private and commercial banking was down in the quarter, although loan growth of 3% could offset deposit margin compression. The segment’s net income declined 11% to EUR 287 million.