Deutsche Bank Profit Seen Falling as Trading Revenue Slides

Apr 28, 2014 4:36 am ET

(Updates with share price in the sixth paragraph.)

April 28 (Bloomberg) -- Deutsche Bank AG, Europe’s largest investment bank by revenue, will probably say first-quarter profit fell 39 percent as earnings from debt trading dropped.

Net income in the three months through March will fall to 1.01 billion euros ($1.4 billion) from 1.65 billion euros in the first quarter of 2013, according to the average of 10 analyst estimates compiled by Bloomberg News. Debt trading income may slide 22 percent to 2.12 billion euros over the same period, according to the average of nine estimates. The company is scheduled to publish quarterly earnings tomorrow.

Global investment banks are contending with a slowdown in trading revenue as clients hold off investing amid uncertainty over monetary policy and geopolitical crises. Deutsche Bank’s earnings from buying and selling fixed income, currencies and commodities for clients have come under further pressure as it follows European competitors in shrinking its balance sheet to meet stricter regulatory requirements for capital levels.

“Deutsche Bank had a pretty slow start to the year,” Stefan Bongardt, an analyst with Independent Research GmbH who recommends investors buy the shares, said by phone from Frankfurt. “Their efforts to build capital by shrinking assets means they’ve also seen revenue decline more than their competitors in the U.S.”

The five biggest U.S. investment banks saw their combined revenue from such trading fall 13 percent to $15 billion in the first three months of the year from the same period in 2013, data compiled by Bloomberg Industries show. Deutsche Bank relied on that business for 22 percent of its income last year, filings show.

Shares Decline

Deutsche Bank’s shares fell 0.2 percent to 31.26 euros at 10:24 a.m. in Frankfurt, valuing the company at 31.9 billion euros. The 43-member Bloomberg Europe Banks & Financial Services Index rose 0.4 percent.

The lender’s common equity Tier 1 ratio under Basel III rules, a key measure of financial strength, will probably rise to 9.8 percent at the end of March from 9.7 percent three months earlier, according to the average of nine analyst estimates. Five analysts said the ratio would increase, three expected a decline and one anticipated no change.

The company is considering selling about 5 billion euros of shares to raise capital levels, Handelsblatt reported last week, citing unidentified people in the finance industry. Deutsche Bank wants to catch up with the capital ratios of its competitors while complying with new regulation and seizing growth opportunities in investment banking, Handelsblatt said.

Net interest income is expected to fall to 3.61 billion euros in the fourth quarter from 3.65 billion euros a year earlier, according to the average of six analysts’ estimates. Pretax profit in global transaction banking and asset and wealth management is expected to rise, while a decrease is foreseen in pretax profit from private and business clients, the survey showed.

The following is a table of average first-quarter estimates, year-earlier figures and results from the previous quarter, as well as the number of analysts surveyed. The data is in millions of euros.

*T
                           Q1 2014   Q1 2013   Q4 2013    Number
                          Expected  Reported  Reported  Analysts
Revenue before loan          8,526     9,391     6,564        10
loss provisions
Net interest income          3,610     3,650     3,895         6
before loan-loss provisions
Loan-loss provisions           404       354       725         9
Fee and commission income    2,913     2,995     3,074         6
Personnel costs              3,189     3,548     2,672         2
Non-interest expenses        6,636     6,623     7,607         9
Pretax profit/(loss)         1,482     2,414    (1,768)       10
Net income/(loss)            1,007     1,651    (1,360)       10
Common equity Tier 1 ratio   9.8%      8.8%      9.7%          9
under full Basel III rules

                           Q1 2014   Q1 2013   Q4 2013    Number
                          Expected  Reported  Reported  Analysts
Corporate Banking & Securities
Sales & trad., equity rev.     775       766       541         9
Sales & trad., debt and      2,118     2,731       979         9
other products revenue
Origination, equity rev.       182       152       241         5
Origination, debt rev.         404       453       320         5
Advisory rev.                  111        69       140         5
Loan products rev.             286       250       358         5
Total revenue                3,896     4,561     2,461         8
Non-interest costs           2,704     2,654     2,309         6
Pretax profit                1,133     1,846        87         7

                           Q1 2014   Q1 2013   Q4 2013    Number
                          Expected  Reported  Reported  Analysts
Global Transaction Banking:
Pretax profit                  325       318        86         7
Private & Business Clients:
Pretax profit                  479       483       218         8
Asset & Wealth Management:
Pretax profit                  247       220       201         8
Non-Core Operations Unit:
Pretax (loss)                 (474)     (196)    (1,228)       7
*T

--With assistance from Shane Strowmatt in Frankfurt.