Germany's biggest commercial lender has posted an unexpected profit in the third quarter as it struggles to avoid a multi-billion dollar fine in the US and amid nagging doubts about its capital reserves.
Deutsche Bank logged a net profit of 278 million euros ($303 million) between July and September, after posting a record loss of six billion euros ($6.5 billion)in the same period last year.
The profit figure, revealed on Thursday, strongly surprised analysts, who had expected another loss of about 949 billion euros ($1 trillion) in a poll for Factset and given the lender's ongoing crisis.
Quarterly revenues at Germany's biggest bank also increased to 7.5 billion euros ($8 billion) - just slightly higher from the third quarter 2015.
Deutsche's chief executive John Cryan said in a statement that the bank was making "good progress" in restructuring its business. "However, in the past several weeks these positive developments were overshadowed by the attention around our negotiations concerning the Residential Mortgage Backed Securities [RMBS] matter in the United States. This had an unsettling effect," he added.
Huge legal costs
Deutsche Bank is fighting a $14-billion (12 billion euros) demand from the US Department of Justice (DoJ) over the misselling of mortgage-backed securities in the run-up to the 2008/2009 financial crisis.
This and a series of other lawsuits threatening to cost the bank dearly has forced Deutsche Bank to set aside more money for legal costs in the quarter, with litigation reserves rising to 5.9 billion euros ($6.4 billion.)
"Discussions with the DOJ to resolve its investigation of Deutsche Bank's pre-financial crisis RMBS business are ongoing," Deutsche Bank said in a presentation. It gave no information on when it expects to settle the case, but hopes to get away with a significantly reduced fine of around 5.4 billion euros ($5.9 billion), according to sources familiar with the matter.
Profits from bonds
Between July and September, the bank's profit was mainly driven by its bond trading activities as it benefited from a surge in debt markets that boosted all Wall Street banks' earnings.
Its bond trading division, which has volatile revenues and tough capital requirements to meet, was up 14 percent in the quarter, driven by Britain's surprise vote to leave the European Union and bouts of anxiety about monetary policy around the world.
Compared to its peers, Deutsche Bank's bond trading activities however showed a subdued rebound, in part related to its decision to trim the unit.
In equities trading, Deutsche Bank saw revenues decline in the quarter as low stock markets volatility gave investors less reason to trade. Revenues from corporate and investment banking fell by one percent due to weaker M&A fees and capital markets activity.
Deutsche Bank shares rose 3.6 percent in pre-market trading, outperforming Germany's blue-chip DAX index which declined on Thursday.
uhe/jd (Reuters, AFP, dpa)