Deutsche Bank Q3: “A Decent Top-Line Driven Performance” – Jefferies

Deutsche Bank Q3: “A Decent Top-Line Driven Performance” – Jefferies
By Deutsche Bank AG (GIF format logo) [Public domain], via Wikimedia Commons

Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) posted solid third-quarter results, with businesses outside of IB above expectations for the first time in several quarters, notes Jefferies.

Omar Fall of Jefferies, in an October 29th research report titled: “Solid Quarter but More Clarify Needed on Key Issues” ,notes capital is fine for the Frankfurt-based bank though more guidance is needed on leverage.

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More clarity needed

Fall notes Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) produced a decent top-line driven performance, though there was a lack of clarity on the call around leverage targets and expense overruns. Although the analyst views both the issues as manageable, as a highly unloved stock, Deutsche Bank has little room for uncertainty.

Commenting on the bank’s IB segment, the analyst notes clean PBT of  €938m was 18% ahead of consensus. The analyst points out that FICC outperformance was unsurprisingly driven by FX and securitization, while Equities strength came from Prime Finance.

According to the Jefferies report, the bank’s transaction banking segment PBT was 1% ahead, while Asset and Wealth was 17% ahead, driven by impressive revenues. The analyst points out that only Retail PBT missed with better revenues offset by 5% higher expenses, and management highlighting during the call that there were some one-offs here.

Fall also points out that Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB)’s clean PBT of €1.5 billion is 18% ahead of consensus when adjusted for the recently guided litigation charge among other items. Moreover, adjusted revenues of €7.9 billion were 5% ahead of consensus, offsetting costs of €6.1 billion, which were 4% worse.

Deutsche Bank hit by legal costs

As reported by ValueWalk last week, Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) announced that it anticipates litigation costs of EUR894 million for the third quarter 2014. In a brief post on its website, the company said the litigation costs for the third quarter, which are for a number of items, are largely not tax-deductible.

As legal expenses soared, Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) announced the appointment of Marcus Schenck, a former Goldman Sachs’ investment banker, as CFO, replacing Stefan Krause.

Focusing on the leverage aspects, the Jefferies analyst points out that CET1 at 11.5% was flat QoQ, though 20bps ahead of consensus, driven by FX-adjusted Market RWA reduction. The analyst notes Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB)’s BCBS leverage ratio of 3.2% was flat QoQ with €66bn deleveraging achieved in the quarter, largely in repos and derivatives.

Omar Fall notes he also would have liked more detail on further potential deleveraging to achieve the 3.5% leverage ratio target, given than the bank has already undertaken some €200 billion out of its original €250 billion target.

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