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Deutsche Bank AG expects trading revenue to decline as much as 20% this quarter and it is the first major European investment bank to warn of a significant slowdown.
Fixed income trading will drop 15% to 20% compared with the bumper quarter a year earlier, when it rose more than 30%, Chief Financial Officer James von Moltke said on Thursday at an investor conference hosted by Goldman Sachs Group Inc in Paris. Analysts were expecting a decline of about 12%.
The German lender joins Wall Street firms in seeing a slowdown in debt trading, as interest rates near their peak while the economy is likely to enter a recession. JPMorgan Chase & Co expects revenue from investment banking and trading to each decline 15% from a year ago, and Sachs has warned of a slump in trading that could exceed 25%. Bank of America Corp expects its traders to be roughly flat.
“The trading slowdown is driven by weaker demand for products that allows investors to bet on interest rate or foreign exchange movements,†von Moltke said.
A drop of as much as 20% would continue as a trend that started in the first quarter, when Deutsche Bank reported 17% lower fixed income revenue. The lender announced plans in April to cut about 800 senior back-office staff as Chief Executive Officer Christian Sewing steps up cost reductions in response.
While trading revenue is down, higher interest rates have fueled income at the corporate and private banking units that were at the center of Sewing’s strategic revamp four years ago. Moltke noted that tailwind continues, even as the positive effect from higher rates has peaked.