Reports

Private Banking Net Revenues Rise At Deutsche Bank

Tom Burroughes, Group Editor, 29 July 2021

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Germany's largest lender reported a broadly strong set of figures for its private banking businesses in the quarter; there was some negative impact from a federal court ruling in April about banks' terms and conditions.

Deutsche Bank - which operates in regions including Asia - yesterday said that private bank net revenues in the second quarter of 2021 stood at €2.0 billion ($2.36 billion) rising by 3 per cent year-on-year versus the prior year quarter; they would have risen 8 per cent if adjusted for the financial impact of a federal German court ruling.

Continued business growth in improved market conditions more than offset pressure on deposit margins from low interest rates. New business volumes of €14 billion in the quarter included €4 billion in net new client loans and €7 billion in net inflows of investment products, the sixth consecutive quarter of net inflows into investment products, the Frankfurt-listed bank said in a statement. 

Revenues in the Private Bank Germany dipped 1 per cent but rose 7 per cent if adjusted for the €93 million impact of the court [BGH] ruling. Germany’s Federal Court of Justice in April this year ruled that clauses on ‘fictitious consent’ in the event of changes to banks' general terms and conditions (GTCs) were invalid. There was a negative effect on Deutsche's pre-tax profit €226 million from the ruling requiring active customer consent for pricing changes on current accounts. This included an impact of €96 million in foregone revenues, of which €93 million was in the Private Bank Germany with the balance in the International Private Bank and Corporate Bank. The cost impact was €130 million in litigation expenses, also predominantly in the Private Bank. 

Among other figures, Deutsche Bank said revenues in its International Private Bank grew by 9 per cent year-on-year, or 8 per cent excluding specific items.

Within the German group’s asset management arm, net revenues stood at €626 million in the quarter, up 14 per cent on a year ago. Growth was driven primarily by a 15 per cent expansion in management fees, as five consecutive quarters of client inflows and supportive market performance more than offset continued industry-wide margin pressure. Net inflows were a record €20 billion in the quarter.

Group results
For the bank as a whole, Deutsche Bank said group pre-tax profit was €1.2 billion in the second quarter of 2021, versus €158 million in the second quarter of 2020. Net profit was €828 million, up from €61 million in the prior year quarter. 

Despite the profit bounce, the German bank logged an 11 per cent drop in net revenues in its investment banking division (€1.8 billion) from a year ago. That figure appeared to jolt investors even though the headline profit result for the group beat analysts' forecasts. Shares in Deutsche were down around 0.4 per cent around 10:45 am in Frankfurt.

In the Core Bank, which excludes the Capital Release Unit, second-quarter profit before tax rose by 90 per cent to €1.4 billion, it said. The Capital Release Unit reported a loss before tax of €258 million in the quarter, down by 56 per cent from a loss of €591 million in the second quarter of 2020. 

The bank has been cutting its costs to improve long-term profitability, as well as cutting some of its risk exposures. It said that non-interest costs fell by 7 per cent to €5.0 billion in the quarter, in spite of pressure from several external factors including €130 million in litigation provisions relating to the BGH [German federal court] ruling. The workforce was cut: an additional 592 full-time equivalents (FTEs) to 83,797 during the quarter, and by about 3,000 FTEs over the past 12 months. At the end of the quarter, Deutsche Bank had recognised 90 per cent of the total transformation-related effects anticipated through the end of 2022, it said. 

Provision for credit losses was €75 million in Q1 2021, tumbling by 90 per cent compared with €761 million in the second quarter of 2020 when the COVID-19 crisis was at its height. Provisions for non-performing loans were €111 million in the quarter, falling by 33 per cent on the previous quarter and down by 78 per cent compared with the second quarter of 2020.

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