Deutsche Bank’s return to growth delayed as trading trails

Bloomberg

Deutsche Bank AG’s muted gains in a particularly strong period for Wall Street trading is raising doubts about how quickly Chief Executive Officer John Cryan can recover ground lost to competitors. Europe’s largest investment bank on Thursday reported an 11 percent increase in revenue from trading bonds and currencies in the first quarter. That’s less than half the 24 percent jump in the combined fixed income revenue at the five biggest US investment banks. Income from dealing in stocks, which the firm has sought to expand because of its lower capital requirements, declined 10 percent while it was broadly flat at the US lenders.
The results suggest the bank has yet to fully win back the trust of clients, including hedge funds that reduced business in the final months of last year amid concern about the lender’s capital strength. Cryan has vowed to return to “controlled growth” after misconduct charges sapped years of earnings and forced the firm to tap investors for 8 billion euros ($8.7 billion) in fresh capital this month.
Deutsche Bank recovered about half the prime brokerage balances it lost in the fourth quarter, Chief Financial Officer Marcus Schenck, who was named co-head of the investment bank last month, said in an interview. Debt-trading revenue was hit by the bank’s 2015 decision to exit from securitized trading, he said.
Analysts surveyed by Bloomberg News had expected an 18 percent increase in fixed-income trading and a 2.6 percent decline in equities trading revenue, according to the average of eight estimates. Advisory revenue was down 24 percent.

‘Getting Stronger’
Net income in the three months through March rose to 571 million euros, from 214 million euros a year earlier. That beat the 475 million-euro estimate of seven analysts surveyed by Bloomberg as costs declined and the company booked lower restructuring charges.
Net revenue in the first quarter fell 9 percent, largely the result of an accounting effect known as debt-valuation adjustment, or DVA. It stems from an increase in the value of the company’s debt, which would be more expensive to buy back as confidence in the lender’s strength returned. Without that impact, revenue would have been “broadly flat,” Cryan wrote in a letter to employees.

‘Grow Moderately’
The bank said it expects segment revenues to “grow moderately” this year when adjusting for certain one-off effects, helped by an improved operating environment for Deutsche Bank and a better economic outlook.
At the securities unit, revenue from both rates and credit trading rose last quarter while foreign exchange business saw income fall from a year earlier in a “low volatility environment.” Emerging markets revenues were flat across the Latin America and central and eastern Europe, the Middle East and Africa regions.
The bank said that while cash equity and equity derivatives revenue rose in the quarter from a year earlier, income from its prime finance business was “significantly lower.” That reflected higher funding costs as well as lower client balances, which have recovered compared to their level in the fourth quarter.