Deutsche Bank leans on traders as corporate bank outlook cut
Deutsche Bank said a trading rally that lifted revenue this year continued into the fourth quarter and will help boost growth through 2022, as Chief Executive Officer Christian Sewing relies increasingly on the investment bank for his turnaround plan.
Sewing on Wednesday increased his outlook for the business, saying it will generate 8.5 billion euros ($10.3 billion) of revenue in two years' time, 600 million euros more than targeted. But headwinds from negative interest rates forced the CEO to cut the forecast for the corporate bank -- a centerpiece of his strategy -- and lower the group revenue target slightly, to 24.4 billion euros from 24.5 billion euros.
The bigger role for the investment bank -- first reported by Bloomberg on Friday -- underscores Sewing's increasing reliance on a trading business he had initially planned to cut back even further, as profit from lending is being eroded by Europe's negative interest rates. Fixed-income trading is now a bigger revenue contributor than when former investment bank head Anshu Jain took over as co-CEO in 2012.
"We have really underestimated the potential in those businesses where we want to be strong," Sewing said in a Bloomberg TV interview. "I do believe that a good part of the outperformance we have seen in 2020 is sustainable."
Deutsche Bank rose 0.9% at 11:56 a.m. in Frankfurt trading. The stock has gained 38% this year, the best performer among the large European lenders. It's down about 16% since Sewing took over in April 2018.
Trading grew 10% in October and 23% in November from a year earlier, the lender said in a presentation. Deutsche Bank now expects 9.1 billion euros in revenue at the investment bank for 2020, which translates into about 1.7 billion for the fourth quarter, compared with 1.5 billion euros a year ago. The top line is expected to decline next year when market conditions normalize.
Sewing is counting on the additional revenue from trading to help offset 1.2 billion euros in new headwinds from negative interest rates, which hit the corporate bank the hardest. The unit was initially the centerpiece of Sewing's strategy when he unveiled it in July of last year. Since then, he's had to adjust revenue expectations twice because of the rate environment, forcing him to rely more on the trading business he had planned to cut back even further.
Germany's largest lender also gave a goal for net income for the first time since unveiling the new strategy, targeting 4.5 billion euros by 2022, as it steps up cost reductions in the wake of the pandemic. Germany's largest lender expects to lower its 2022 adjusted costs by 300 million euros more than previously announced, to 16.7 billion euros.
Sewing, a former corporate banker, last year announced Deutsche Bank's biggest restructuring in at least two decades, exiting equities trading and focusing on businesses where the bank says it has a leading position. He's cutting 18,000 jobs, or a fifth of the workforce, after several failed turnaround efforts under his predecessors.