Fitch: Deutsche Bank's Q213 Results in Line with Expectations

Wed Jul 31, 2013 10:04am EDT

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(The following statement was released by the rating agency) MILAN/LONDON, July 31 (Fitch) Fitch Ratings says that Deutsche Bank AG's (A+/Stable/a) Q213 results were in line with its expectations and showed progress in strengthening its balance sheet as capitalisation improved further. Deutsche Bank's estimated 'look-through' Basel III common equity Tier 1 (CET1) ratio reached 10%, which compares well with its peers among the global universal and trading banks. The bank also reported an estimated CRD IV leverage ratio of 3% (including estimated eligible Additional Tier 1 instruments). Fitch expects the bank to be able to improve its leverage ratio as it plans to reduce exposure by about EUR250bn, equal to 16% of end-June 2013 total exposure. The bank's underlying Q113 performance remained sound, but a EUR630m litigation provision and EUR356m costs related to the bank's strategy implementation dented pre-tax profit, which at EUR792m was 8% lower than in Q212. Compared with the seasonally strong Q113, pre-tax profit dropped 67%, driven by lower net revenue and a higher EUR699m pre-tax loss in the bank's non-core operations unit. Fitch expects underlying performance to remain sound in the coming quarters, but costs to achieve the bank's reorganisation under its strategic plan are expected to increase in H213 while the impact of related savings is only expected to show through materially from 2014. Deutsche Bank's Corporate Banking & Securities (CBS) business reported EUR785m pre-tax profit, a 58% yoy increase but an equal percentage below Q113 pre-tax profit. Debt sales and trading revenue declined both yoy (by 11%) and qoq (by 31%) as lower market activity affected the bank's rates and flow credit business and RMBS revenue suffered. Foreign exchange and emerging market revenue improved yoy. The qoq decline in debt sales and trading was somewhat more pronounced than at the bank's non-EU peers in the quarter. Equity sales and trading revenue proved resilient, as cash equities and equity derivatives improved yoy while prime brokerage performed in line with Q212. Overall, equity sales and trading revenue increased 55% yoy and 2% qoq. Origination and advisory revenue improved both yoy and qoq as the bank saw market share gains. Operating expenses in CBS remained flat yoy, and the businesses cost/income ratio stood at 78% (down from 85% in Q212). Private & Business Clients reported EUR507m pre-tax profit, up 38% yoy, benefiting from increased revenue, and from EUR100m in one-off items. Fitch expects this business, where loan impairment charges declined 10% yoy, to contribute stable earnings, but costs to achieve related to the Deutsche Postbank integration will increase substantially in H213. The group's other businesses, Global Transaction Banking and Deutsche Asset & Wealth Management, reported Q213 pre-tax profit of EUR322m and EUR82m, respectively. The bank's Non-core Operations Unit (NCOU) reported a EUR699m pre-tax loss, significantly up from the EUR196m pre-tax loss in the previous quarter but broadly in line with the average quarterly loss in FY12. Risk-weighted assets in the NCOU continued to shrink in Q213. They amounted to EUR80bn at end-June, down from EUR141bn at end-June 2012 (total assets reduced by EUR47bn to EUR73bn in the same period). Further RWA and asset reduction in the NCOU is likely to slow down, but the bank has achieved its end-2013 target RWA and total assets at end-June. Fitch expects profit contribution from the unit and from consolidation and adjustments to remain volatile. As a result of Deutsche Bank's EUR2.96bn capital raise in Q213 the bank's 'look-through' CET1 ratio at end-June reached a sound 10%. As expected, the bank has addressed its on- and off-balance sheet leverage in anticipation of CRD IV requirements and estimates a 3.5% leverage ratio on transitional rules and 3% on a 'look-through' basis. Fitch expects the bank to be able to reach leverage ratio requirements as it should be able to reduce on- and off-balance sheet exposures and can use additional Tier 1 instruments to meet the 'look-through' requirements. As part of its leverage ratio management, Deutsche Bank could reduce the size of its liquidity pool, although Fitch expects it to remain ample. The agency considers the bank's funding and liquidity a strength for its rating. At end-June 2013, the bank's liquidity reserves amounted to EUR213bn (of which EUR45bn held at subsidiaries), down 8% compared to end-2012. The liquidity pool includes EUR199bn cash and highly liquid securities (government, agency and government-guaranteed bonds), and the liquidity reserve at the parent bank was equal to 204% of unsecured short-term wholesale funding. Contact: Christian Scarafia Senior Director +39 02 87 90 87 212 Fitch Italia S.p.A. V.lo S. Maria alla Porta 1 20123 Milan Michael Dawson-Kropf Senior Director +49 69 76 80 76 113 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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