Deutsche Bank FICC Tumbles 17%, Worst Q2 Since The Financial Crisis

Back on July 16, in an attempt to boost its flailing stock which just weeks earlier hit an all time low, Deutsche Bank reported preliminary results that were better than analysts had expected. It saved the not soo good news for its official earnings release earlier this morning, when the biggest German bank reported that revenue from FICC, or trading of fixed-income, currency and commodities, traditionally a bank's most profitable segment, tumbled 17% from a year earlier to €1.37 billion ($1.6 billion) from €1.65 billion, the fifth consecutive drop and the lowest figure for the the second quarter since the financial crisis.

By comparison, the big five U.S. investment banks saw total debt trading revenue rise by 6.7% over the same quarter.

Some other key results from the second quarter:

  • Revenue: €6.59BN vs €6.62BN Y/Y

  • Fixed income trading: €1.37BN, vs €1.65Bn Y/Y

  • Equity trading: €540MM vs €577MM

  • CIB revenue: €3.58BN vs. €3.62BN y/y

  • Pretax Profit: €711MM, vs €822MM

  • Net Income €401MM, vs €466MM

Commenting on the results, JPM analyst Kian Abouhossein said that "Restructuring on track but the bank is not out of the woods yet on revenue."

Sewing, who unexpectedly took over as CEO from John Cryan less than four months ago, has been scrambling to reverse what the bank has called a "vicious circle" of declining revenue, sticky expenses and rising funding costs.

Unfortunately, as Bloomberg notes, the vicious cycle is unlikely to break soon as higher funding costs, cuts to the U.S. rates business and exchange-rate swings will probably mean that revenue from fixed-income trading will be “slightly lower” this year. Still, the bank said it’s “confident of maintaining its position as the fourth-largest house globally in fixed income and currencies.”

"In the second quarter we accelerated the reshaping of our bank significantly and proved the resilience of our global business,” Sewing said in a statement. “We’re making important changes to our core businesses as promised, we’re headed in the right direction on costs, and our balance sheet quality is strong."

Despite the declines in trading, revenue at the securities unit, which is now the biggest contributor overall to income, held up in the second quarter, falling just 1%. That reflected higher income from the advisory business as well as several one-time effects. Global transaction banking increased 4 percent, a sign that the business has turned a corner, Sewing said.

In general, revenue stabilized in the quarter and adjusted costs fell slightly, with Sewing pledging more discipline on expenses.

The biggest problem, however, facing DB is not sliding revenues but employee morale and retention: sewing is cutting at least 7,000 jobs and retrenching in investment banking areas such as prime finance, U.S. rates, and corporate finance in the U.S. and Asia.

“It is comforting that Deutsche Bank is on track but we believe improving returns from a low level will take time,” said Anke Reingen, an analyst at RBC Capital Markets, in a note to investors.

It may be comforting to Anke, but to investors who have stuck with the company for the past decade, there is little that can qualify as "good news" at this point.


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