Deutsche Bank’s traders take Sewing closer to profit goal

Bloomberg

Deutsche Bank AG raised the outlook for its investment bank after fixed-income traders outperformed Wall Street peers for a seventh straight quarter, boosting Chief Executive Officer Christian Sewing in the final year of his turnaround plan.
Revenue from buying and selling fixed-income securities rise 15% from a year earlier, beating the biggest US investment banks, where the business was little changed in the first quarter. But in a sign of the challenges ahead, the outlook for costs worsened amid higher compensation across the industry.
The results underscore the continuing importance of the trading business as Sewing closes in on a target for an 8% return on tangible equity this year, the most important goal of the restructuring he unveiled three years ago. While revenue was up across all operating unit
As, provisions for bad loans rose as Russia’s invasion of Ukraine, Covid-19 lockdowns in Asia and high inflation added to risks.
“We must keep an eye on growing risks,” Sewing told staff. “The global economic outlook is deteriorating, while inflation rates continue to rise.”
Sewing has said that Deutsche Bank’s home market, Germany, would face a recession if it couldn’t import gas from Russia anymore. That risk came to the fore again this week after Russia cut gas supplies to Poland and Bulgaria in a major escalation.
Rising prices and competition for talent, meanwhile, are driving up costs and threaten to undermine years of savings. The lender said in a presentation that “effects from workforce reduction” were being “offset by payroll inflation,” after Deutsche Bank last month agreed to boost wages for 8,000 employees by 5.2% in two steps.
Non-interest expenses of 5.38 billion euros ($5.73 billion) in the first quarter well exceeded the 5.09 billion-euro analyst estimate compiled by Bloomberg. Deutsche Bank changed the outlook for adjusted costs from “slightly lower” to “essentially flat” this year.
For now, the boost from trading and higher interest rates across the globe are helping offset cost pressures. Deutsche Bank said it now expects investment bank revenue this year to be slightly higher, reflecting the strong performance in the first quarter. It previously guided for flat revenue.
While the outlook for group revenue was unchanged, tighter monetary policies across the globe has begun to bolster lending revenue across the region. First-quarter results published this week showed lenders from UBS Group AG to HSBC Holdings Plc and Banco Santander SA were all seeing the benefit of higher rates.
For Sewing, who is leaning on the other operating divisions to pick up the slack once the trading boom in the investment bank peters out, that’s good news.
The corporate bank that was a center piece of his turnaround strategy posted its second straight quarter of double-digit growth.