Deutsche Bank’s shrunken investment bank was the main driver of a big uptick in profits during the third quarter, as the bank continues to strip out front line jobs in the division as part of its ongoing overhaul.
The German lender posted a profit of €182m for the third quarter, compared to a loss of €942m for the same period in 2019, which was ahead of analyst expectations.
Its investment bank, the target of its huge overhaul announced in July last year that will eventually see 18,000 jobs lost across the group, posted pre-tax profits of €957m — almost double that predicted by analysts, with revenues surging by 43% on the previous year to €2.4bn.
Predictably, given the huge gains enjoyed by rivals this year, much of the increase was driven by Deutsche’s fixed-income trading unit, which has largely escaped any cuts. Revenues of €1.8bn were 47% ahead of the same period last year, but marginally down on the second quarter. The bank said revenues within its rates trading business doubled on the same period in 2019.
Meanwhile, its equity advisory unit, which now runs without a sales and trading operation to support it after the bank sold it to BNP Paribas as part of its overhaul, surged by 157% to €100m. Deutsche’s debt underwriting unit — considered a core division of the bank under its new strategy — was up by 20% to €387m.
Deutsche’s chief executive, Christian Sewing, said the bank gained market share during the quarter. “Our more focused business model is paying off and we see a substantial part of our revenue growth as sustainable. Our balance sheet strength and high-quality risk management enable us both to support clients in challenging times and to take advantage of new business opportunities,” he said in a statement.
Deutsche Bank resumed its plans to cut jobs just six weeks after pausing them in March during the height of the Covid-19 pandemic in line with its rivals. Around 400 front line jobs in the division have gone since the third quarter of 2019, with headcount now standing at 4,106. Deutsche now has 86,984 employees across the group, a reduction of around 600 on 2019.
There is little sign of this improved performance in the investment bank resulting in larger pay packets, however. The bank has put aside €1.5bn in compensation during the first nine months of 2020, which is flat on last year. But this works out as an average payment of €360,000 compared to €329,400 at the same point in 2019.
Investment banks have been treading a delicate line of rewarding employees as revenues have surged across most business line, with the likely reputational hit of paying out big bonuses during a pandemic that has hit the global economy hard and forced a surge in unemployment.
Provisions for bad loans at Deutsche during the third quarter were €273m, taking the total put aside for the year to around €1.5bn.
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