A January 29th Jefferies Flash Note on Deutsche Bank highlights that the “black sheep of the IB sector” reported very strong fourth quarter earnings on Thursday. One headline note was revenues coming in at 6% above consensus analyst estimates.
Jefferies rates Deutsche Bank as a Buy with a price target of €36.90.
Jefferies analyst Omar Fall notes: “Driven by lower-than-expected litigation charges and a ‘better-than-peers’ performance in Sales and Trading, DBK delivered a material beat against expectations. The popular long-held market narrative of franchise erosion in FICC makes increasingly little sense to us.”
Details on Deutsche Bank’s fourth quarter earnings report
Income before interest and taxes (IBIT) of €253m was far ahead of consensus IBIT loss of -€221m. Revenues were also a solid 6% ahead of analyst consensus, driven by higher IB and non-core revs. Moreover, costs were 1% below the Street (even with a €330m charge in Retail for loan processing fees), related to much lower than anticipated legal costs (€207m versus consensus of €835m). A tax gain of €189m for the fourth quarter also means that net income of €0.4bn easily surpassed the analyst consensus of -€300m.
The Jefferies report also highlights that Equities & FICC Sales & Trading had a strong three months: In the IB, adjusted PBT of €672m was a robust 5% ahead of street estimates, largely due to a 35% year-over-year increase in Equities S&T revenues and a 13% year-over-year uptick in FICC S&T (outperforming peers). Most of the strength relates to a decline in RMBS share price, as well as a strong foreign exchange performance.
Moreover, DB management guided for a positive start to 2015 for the IB, notably including the Rates business which had a poor fourth quarter.
Fall notes that the headline PBT of €55m actually masks a good quarter in PBC, which would have also been ahead of the Street if not for the one-time €330m charge for loan processing fees. On an adjusted basis removing the €330m charge, PBT is nearly.31% higher than analyst consensus of €610m.
Performance of other divisions
DB’s saw a robust NCOU performance with PBT of -€690m this quarter, €190m above consensus. DAWM beat expectations by 41%, but mainly due to one-off’s such as a a partial writeback of intangibles of €83m related to the Scudder deal. Of note, adjusted PBT was 2% below the Street expectations and Transaction Banking missed consensus by 10% due to higher non-interest expenses.