Stocks slide despite earnings beat

Deutsche Bank It reported its 10th straight quarterly profit on Thursday, but shares retreated as analysts focused on an uncertain outlook and weakness at the investment bank.

Deutsche Bank reported net profit attributable to shareholders of 1.8 billion euros ($1.98 billion) in the fourth quarter, raising its annual net income for 2022 to 5 billion euros, up 159% from a year earlier.

The German lender almost doubled the consensus estimate among analysts polled by Reuters on net profit of 910.93 million euros for the fourth quarter and beat forecasts of 4.29 billion euros for the year.

Despite the strong net profit figures, Deutsche Bank shares were down 2.4% in Europe by mid-morning as analysts focused on uncertainty over the macroeconomic outlook, evidenced by the bank’s reluctance to issue share buybacks at this stage.

Amit Goel, co-head of European banking equity research at Barclays, described the results as “slightly mixed” given that the strong earnings message for 2023 was offset by weaker-than-expected results in many other metrics, particularly in the fourth quarter. investment bank.

“Our consensus and estimate for revenue loss was also largely offset by lower IB and corporate center result partially offset by better corporate banking; both FIC and origination and advisory were lower within IB,” Goel said.

The investment bank’s total revenues fell 12% year over year in the fourth quarter. Its contribution to Deutsche Bank’s parent bank’s pre-tax profit fell 6% to 3.5 billion euros.

The bank’s full-year results follow an extensive restructuring plan announced in 2019 to cut costs and improve profitability. It has seen Deutsche Bank exit its global equity sales and trading operations, downsize its investment bank and cut around 18,000 jobs by the end of 2022.

The result represents a significant improvement on the 1.9 billion euros reported in 2021, and CEO Christian Sewing said the bank had “turned around successfully” over the past three and a half years.

“By focusing our business around our core strengths, we have become significantly more profitable, more balanced and more cost-effective. In 2022, we demonstrated this by delivering our best results in fifteen years,” Sewing said in a statement on Thursday.

“Thanks to the disciplined execution of our strategy, we have been able to support our clients in highly challenging conditions, and have proven our resilience through strong risk discipline and sound capital management.”

After-tax return on average tangible shareholders’ equity (RoTE), a key metric identified in Sewing’s transformation efforts, was 9.4% for the full year, up from 3.8% in 2021.

Other quarterly highlights include:

• Provisions for loan losses were 351 million euros, compared to 254 million euros in the fourth quarter of 2021.
• The common equity 1 (CET1) ratio, a measure of the bank’s solvency, was 13.4% compared to 13.2% at the end of the previous year.
• Total net income was 6.3 billion euros, up 7% from 5.9 billion euros in the same period in 2021, but slightly below consensus estimates for an annual total of 27.2 billion euros in 2022.

Deutsche also proposed a shareholder dividend of 20 cents a share to 30 cents a share in 2021, but did not announce a share buyback.

“Regarding share buybacks, we’re holding off for the time being given the environmental uncertainty we’re seeing today, as well as some regulatory changes we’d like to see both in terms of timing and volume. We think it’s a prudent move. we intend to review,” CFO James von Moltke told CNBC on Thursday.

He added that the bank would probably reassess the forecast in the second half of this year and confirmed Deutsche’s target of 8 billion euros in equity distributions to shareholders by 2025.

Deutsche’s corporate banking division posted a 39% rise in net interest income, helped by “higher interest rates, strong operating performance, business growth and favorable currency movements”..”

The fourth quarter “won”

The bank said some of the tailwinds have been offset by a slowdown in deals that has affected the wider industry in recent months.

“The fourth quarter for us was a bit behind November and December, but it was still a record quarter in our FIC (fixed income and currencies) business for the fourth quarter, at $8.9 billion. [euros] for the full year,” CFO von Moltke told CNBC’s Annette Weisbach.

“We are very pleased with this performance, but … it fell slightly short of analysts’ expectations and our year-end guidance.”

He said January was a month of strong performance for the bank’s trading divisions as market volatility continued.

“This gives us some encouragement that our general view that volatility and conditions in macro businesses will decrease over time, but that will be offset, if you will, from a revenue perspective by increased activity in micro areas such as credit, M&A, equity, but also lending,” he said.

“We see that as a thesis of what 23 will look like, it’s still intact.”