Dhe Deutsche Bank made a surprising profit in the first quarter of 2020. As Germany’s largest bank announced on Sunday evening shortly before midnight, Deutsche Bank made a profit of EUR 206 million before and EUR 66 million after tax between early January and late March. Analysts had expected Deutsche Bank to make a loss. In consensus, the analysts anticipated a loss of EUR 248 million before taxes and EUR 338 million after taxes. Deutsche Bank explicitly countered this expectation with its ad hoc announcement on Sunday evening.
The quarterly results outlined in outline also surprise in the details. For example, Deutsche Bank had to cover more than the analysts had expected for the loan defaults, which will increase due to the looming recession. Instead of 345 million euros, as estimated and what would have been 200 million euros more than in the same quarter of the previous year, Deutsche Bank even deposited 500 million euros for loan defaults. The fact that it still made profit and not loss in the first quarter was apparently due to the significantly higher earnings.
According to the announcement, Deutsche Bank generated earnings of 6.4 billion euros in the first quarter of 2020, significantly more than analysts had previously estimated at 5.7 billion euros. American banks like J.P. Morgan had already reported record earnings in securities trading in the first quarter. However, analysts had doubted whether these figures could be transferred to Deutsche Bank. While bond trading is at least traditionally a domain of Deutsche Bank, it has completely withdrawn from global equity trading since July 2019.
The core capital ratio could easily fall below
However, the quarterly figures announced on Sunday evening also have a dark side, and this affects the capital base. In order to support customers in the impending recession, the Board of Management of Deutsche Bank decided on Sunday to grant more loans than planned. The equity could therefore fall below the target value of the bank, it says in the message. The core capital ratio, which fell from 13.6 percent to 12.8 percent between the beginning of January and the end of March, the target of 12.5 percent, could be slightly below the target, according to Deutsche Bank’s announcement.
“We are determined to use our balance sheet to support customers who now need us particularly,” said Christian Sewing. The CEO of Deutsche Bank, who has been in office since April 2018, continued to be quoted: “This decision could mean that our core Tier 1 capital ratio could temporarily fall short of our target of at least 12.5 percent without weakening our bank’s solid balance sheet.”
The bank naturally wants to comply with the requirements of banking supervision, which has recently only required a core capital ratio of 10.4 percent from Deutsche Bank in response to the corona crisis instead of 11.6. The core capital ratio should also reach the old target of 12.5 percent for 2022 – as will the leverage ratio. Deutsche Bank now considers compliance with the previous target for the debt ratio of 4.5 percent for 2020 to be “unlikely” in view of the “possible additional growth in the balance sheet”. In 2022, however, a leverage ratio of 5 percent is to be achieved. Otherwise, Deutsche Bank reaffirmed its financial targets. She expressly mentions in the Sunday evening announcement that in 2020 the costs after the transfer of the hedge fund business to the French bank BNP Paribas should drop to 19.5 billion euros. Deutsche Bank will present its full quarterly results this Wednesday.