Deutsche Bank trading revenue trails rivals’ as it struggles to recover from misconduct charges

Revenue from trading bonds and currencies, its largest source of income, rose 11 per cent in the first quarter from a year earlier

Deutsche Bank’s shares have rebounded 84 per cent from their low in September (Reuters)

Deutsche Bank's John Cryan is keeping investors waiting for the return to growth he promised, as trading revenue at Europe’s largest investment bank trailed peers in the first quarter.

Revenue from trading bonds and currencies, its largest source of income, rose 11 per cent in the first quarter from a year earlier, less than half the 24 per cent increase reported by the five biggest US investment banks. Revenue from dealing in stocks, a business the firm has sought to expand because of its lower capital requirements, declined 10 per cent while it was broadly flat at the US lenders.

“Investors will focus on bond trading revenue given the good performance of US banks in that business,” Markus Riesselmann, an analyst at Independent Research, wrote in a 24 April note to clients.

Mr Cryan, the bank’s chief executive officer, has vowed to return to “controlled growth” after misconduct charges sapped years of earnings and forced the firm to tap investors for €8bn (£6.76bn) in fresh capital this month. The results suggest the bank has yet to 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.

Net revenue in the first quarter declined nine per cent, 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,” Mr Cryan wrote in a letter to employees.

“Our first-quarter results were made weaker by Deutsche Bank getting stronger,” Mr Cryan wrote. “Clients are returning following the turbulence late last year, and we see this in every business area.”

Analysts surveyed by Bloomberg News had expected an 18 per cent increase in fixed income trading and a 2.6 per cent decline in equities trading revenue at Deutsche Bank, according to the average of eight estimates. Advisory revenue was down 24 per cent.

Net income in the three months through March rose to €571m (£483m), from €214m (£181m) a year earlier, the company said in a statement from Frankfurt on Thursday. That beat the €475m (£401m) estimate of seven analysts surveyed by Bloomberg as costs declined and the company booked lower restructuring charges.

Mr Cryan had initially sought to avoid tapping shareholders. He reversed course after the bank failed to find a buyer for its Postbank consumer unit and the bank’s shares almost doubled from their September low. He now plans to reintegrate Postbank, sell a minority stake in the asset-management unit, and reorganise the investment bank under a new leadership with chief financial officer Marcus Schenck as co-head.

Mr Cryan said in his letter that the restructuring and preparations for the initial public offering of the asset management units are progressing, though the low interest rate environment continues to make life “difficult.” Clients added a net €5bn (£4.2bn) to the asset management business during the quarter.

Deutsche Bank’s shares have rebounded 84 per cent from their low in September. Even after the rally, the stock commands the steepest discount to tangible book value of the nine largest global investment banks. The discount indicates that it’s worth less than investors would expect to receive if the firm liquidated its assets.

Deutsche Bank said 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.

Bloomberg