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 Click Here for more Deutsche Bank Charts.
Deutsche Bank (TG:DBK)
Historical Stock Chart
Von Mär 2023 bis Mär 2024 Click Here for more Deutsche Bank Charts.