Deutsche Bank AG
), Germany's largest lender, returned to profit after reporting a
historical loss in the last quarter. Earnings per share came in
at €1.71 in the first quarter of 2013, compared with a loss of
€2.31 in the prior quarter and earnings of €1.45 in the year-ago
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Net income came in at €1.7 billion ($1.3 billion), up from €1.4
billion ($1.1 million) in the prior-year quarter.
Deutsche Bank's quarterly performance was driven by enhanced
revenues and lower expenses. Strong capital position was also a
positive. However, these were partially offset by higher
provision for credit losses.
Quarter in Detail
Deutsche Bank reported net revenue of €9.4 billion ($7.1
billion), up 2% year over year. The improvement was mainly
attributable to increased revenues in Global Transaction Banking
(GTB), Asset & Wealth Management (AWM) and Consolidation
& Adjustments (C&A) units, along with substantially
improved revenues in the Non-Core Operations Unit (NCOU).
However, these positives were partly offset by lower revenues in
Corporate Banking & Securities (CB&S) and Private &
Business Clients (PBC) segments.
Reduced client activity due to the less favorable macro
environment pulled down the CB&S revenues 4% from the
prior-year quarter to €4.6 billion ($3.5 billion).
At Deutsche Bank's GTB business, solid business volumes offset
continuous pressure on interest margin, and led to a 3%
year-over-year rise in revenues to €992 million ($751 million).
Moreover, the AWM segment posted a year-over-year hike of 8% in
revenues to €1.2 billion ($0.9 billion), attributable to
increased revenues associated with Abbey Life, which were partly
offset by related expenses and increased performance fees.
Additionally, the PBC segment's revenues were €2.4 billion ($1.8
billion), representing a marginal fall of 1% from the prior-year
The provision for credit losses increased 13% from the year-ago
period to €354 million ($268 million).
However, non-interest expenses of €6.6 billion ($5.0 billion)
were down 5% from the year-ago period, driven by disciplined
Deutsche Bank's core Tier 1 capital ratio came in at 12.1% at the
end of the reported quarter, up from 11.4% at the end of the
prior quarter. The rise was attributable to an increase in
retained earnings. As of Mar 31, 2013, the bank's Basel 3 core
Tier 1 ratio came in at 8.8%, above the company's estimate of
Risk-weighted assets moved down to €325 billion ($246 billion)
from €334 billion ($253) at the end of the prior quarter, mainly
due to a successful execution of the risk reduction program in
the NCOU. Total assets scaled up 1% to €2.0 trillion ($1.5
trillion) at the end of the reported quarter.
In its Strategy 2015+, Deutsche Bank declared a number of
initiatives aimed at bolstering its competitiveness through
efficiency improvements, cost cuts and reduced complexity.
Further, the company altered the compensation practices of the
top management. The new policies included the chief executives of
the company having their bonuses paid after 5 years, instead of
the previous practice of part-payment over a span of 3 years.
The company contemplates making investments of approximately €4
billion and other such measures to help achieve full run-rate
annual cost savings of €4.5 billion by 2015. The initial phase of
this revamping initiative was implemented in the third quarter of
Further, Deutsche Bank is focused on scaling back its
risk-weighted assets. Its de-risking measures are also on track.
The company achieved €9 billion ($6.8 billion) of risk-weighted
assets equivalent reduction in NCOU in the reported quarter.
Deutsche Bank's strategic initiatives, including the
repositioning of its core business and bolstering of its capital
levels augur well for its growth. However, the costs related to
it cannot be ignored.
Hurt by the Eurozone debt crisis, Deutsche Bank experienced a
fall in trading revenues in the past. Amid the stressed operating
environment, lower returns and stringent capital norms, the
company is rightsizing its business through job cuts and various
Moreover, owing to macroeconomic uncertainty and the cautious
approach of management, we believe that Deutsche Bank will find
it hard to report substantial improvement in earnings in the
Deutsche Bank currently carries a Zacks Rank #2 (Buy). Other
foreign banks worth considering include
China Merchants Bank Co., Ltd.
DBS Group Holdings Limited
Agricultural Bank of China Limited
). While China Merchants Bank carries a Zacks Rank #1 (Strong
Buy), the other 2 stocks carry a Zacks Rank #2 (Buy).