Deutsche Bank Posts Small Profit as It Boosts Bad Loan Provisions--2nd Update
29 Juli 2020 - 09:23AM
Dow Jones News
By Patricia Kowsmann
Some of Europe's biggest lenders are starting to reveal the
extent of the coronavirus pandemic's impact on their
businesses.
Deutsche Bank AG on Wednesday reported a small second-quarter
profit on the back of strong investment-banking performance as it
set aside EUR761 million ($892 million) to cover potential losses
on loans to borrowers hurt by the effects of the virus.
Meanwhile, Spanish lender Banco Santander SA reported a EUR12.6
billion charge in the second quarter after it re-evaluated goodwill
associated with past acquisitions due to the deterioration in the
economic outlook. The charge drove the lender to a second-quarter
loss of EUR11.13 billion.
"The past six months have been among the most challenging in our
history, " Ana Botin, the bank's executive chairman, said.
In its earnings report, Deutsche Bank said the pandemic has made
it difficult to predict the months ahead.
"The current economic environment could result in both upward
and downward pressure on the bank's capital ratios and financial
performance, which at this stage are difficult to predict with any
certainty," it said.
Deutsche Bank said profit was EUR61 million in the quarter ended
June 30, compared with a EUR3.15 billion loss a year ago, when it
took a big restructuring charge under an overhaul plan meant to
make it leaner and more cost-efficient. Revenue for the latest
quarter was up 1% at EUR6.29 billion.
The result was better than the EUR46 million loss on EUR6.11
billion in revenue analysts expected. Revenue from investment
banking, which has surged at many banks helping corporate customers
raise funds to weather the crisis, rose 46% to EUR2.65 billion,
above expectations.
The coronavirus pandemic couldn't have come at a worse time for
Deutsche Bank, which over a year ago announced sharp cost cuts, the
exit from certain businesses in the U.S. and the sale of a massive
portfolio of risky, loss-making securities in an effort to improve
its earnings. Deutsche Bank, like other banks in the eurozone, is
suffering under a negative rates environment and an overcrowded
banking sector that has made profitability elusive.
Its restructuring -- the latest in a string of failed attempts
over the years -- is largely considered by investors and analysts
as the lender's last chance to succeed as a stand-alone global
bank.
Deutsche Bank Chief Executive Christian Sewing has vowed to keep
the bank's cost-cutting targets in place, even though it had to
slow down firing workers once the pandemic started. Extra savings
have come from unexpected places, including from lower travel
expenses, as staff had to stay put under lockdown measures.
The management's commitment to the new strategy has helped the
bank's shares, which are up 16% this year compared with sharp falls
for those of its peers.
Still, the economic downturn brought in loan-loss charges that
have hurt the bank's bottom line in the first half of the year and
that could make it difficult for a break-even result in 2020.
So far this year, Deutsche Bank has set aside some EUR1.3
billion to cover souring loans. The figure is much smaller than
those reported by U.S. banks, but comparisons are difficult because
Germany's economy is faring relatively well compared with other
countries, including the U.S., which is still struggling to contain
the virus.
Of Deutsche Bank's loan book, 47% is in Germany, followed by 22%
in the rest of Europe and 20% in the U.S., according to a recent
bank presentation. A chunk of the German loans are to mortgage
holders. Bank officials said the lender has also benefited from
limited exposure to some troubled global sectors like cruise lines
and tour operators, and smaller hotels, retail and oil-and-gas
companies.
In the commercial real-estate sector, where Deutsche Bank's
customers include President Trump's family business, the bank said
the loans are safer because they are limited, on average, to 60% of
the property's value.
But high uncertainty over the pandemic, a possible second wave
of cases later this year, and its impact in the global economy,
which Germany is exposed to as a large exporter, mean Deutsche Bank
remains vulnerable.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com
(END) Dow Jones Newswires
July 29, 2020 03:08 ET (07:08 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Deutsche Bank (TG:DBK)
Historical Stock Chart
Von Feb 2024 bis Mär 2024
Deutsche Bank (TG:DBK)
Historical Stock Chart
Von Mär 2023 bis Mär 2024