Deutsche Bank’s (DB) Q2 2016 Earnings Call

posted in: Earnings Call, Notes | 0

John Cryan – CEO

Restructuring to continue

“At Deutsche Bank, we are undertaking as much restructuring as possible in 2016 despite the burden of lost revenues and the added expense in the year. Not to do so would simply perpetuate our structural inefficiency and delay the achievement of our fundamental goal that of returning to sustainable profitability. We’ll not deviate from taking tough decisions just to flatter results in the short-term.”

The restructuring have been painful

“The Bank’s own finances are in very good shape. Over the past four quarters we’ve taken a lot of pain in restructuring the balance sheet.”

Loan losses are smaller compared to historical levels

“In credit, we’re very comfortable with the quality of our portfolios. Our loan losses remains small by any historic measure and our credit books have high stress resilience. ”

Historical low risk trading levels

“In global markets, our aggregate risk-taking – risk trading risk sits at historic lows. Risk management remains tight and vigilant as was demonstrated when markets tested us with the extraordinary volatility we saw following news of the Brexit vote.”

But they still are on the lookout for opportunities for growth

“So we really like the portfolio we have, but we’re also looking for opportunities to take advantage of the environment to deepen in assets we see as attractive. And we continue to look for creative repositioning opportunities.”

They are making good progress with cost control remaining a central focus

“To sum up, the overall report card for the quarter shows reasonably pleasing progress in some trying circumstances. We need to build the Bank’s profitability and the main task of management remains the control of costs, for which we do need to continue to invest. ”

Brexit may give them a competitive advantage

“Yes, on the Brexit, when we operate in London, we in the vast, vast majority of cases, operate out of Deutsche Bank AG itself. So we’re facing our clients and counterparties out of the German bank…We basically view this as something that will essentially be client-driven for us. So we wouldn’t intend to do anything ourselves other than we have to respond to our clients’ requirements. So we are reticent to make any long-term commitments about U.K. other than we don’t plan to do anything of our own best. But if our Eurozone clients in particular increasingly want us to be facing them from locations within the Eurozone, if that proves to be the case, then we are reasonably well-positioned because our head office in home is in the center of the Eurozone. So for us I think we end up slightly bizarrely by having something of a competitive advantage which we didn’t want to create and it’s a bit inadvertent, but we come out of this relatively strongly.”

Marcus Schenck – CFO

The revenues took a big hit

“Global markets revenues were down €924 million compared to a strong prior year quarter, mainly driven by macro uncertainty impacting client flows and idiosyncratic effects stemming from our implementation of Strategy 2020”

Their loan loss provisions declined; they hold a very well diversified Italian loan portfolio

“Loan loss provisions are down 10%, reflecting the continuous good quality of the portfolio. On the back of the recent events in Italy, it is important to note that PWCC’s Italian loan portfolio is very well diversified and provision for credit losses were in line with prior quarters.”

Fiscal discipline helped stabilise costs as revenues remained dim

“Non-interest expenses were up by 5% driven by an increase of restructuring and severance charges of €69 million and higher litigation charges of €28 million for the second quarter. Excluding these charges, the adjusted cost base remains stable…This reflects again strict cost discipline in a pretty weak revenue environment.”

They are committed to the restructuring effort as they aim at sustained profitability

“2016 remains the peak restructuring year for Deutsche Bank. Any meaningful pullback from our restructuring plans would simply delay the Bank’s return to sustained profitability and it’s something we do not plan to do.”

Settling litigation issues have been burdensome

“Litigation remains a burden and while we now have had two consecutive quarters of setting a number of outstanding cases within existing reserves, we still are working diligently to settle the major issues that remain. Unfortunately as you know, the timing of those eventual settlements are ultimately not in our control but we remain hopeful of achieving major settlement this year.”

From the Press release:

  • 20% lower revenues year-on-year reflecting challenging environment and strategic decisions on Revenues and Pre-tax profit of 408 million euros, down 67%.