Dealmaking helps Deutsche Bank deliver biggest profit in a decade

FRANKFURT: Deutsche Bank delivered its most profitable year in a decade on the back of a dealmaking bonanza, strengthening Chief Executive Christian Sewing’s hand as he fine tunes a new strategy and tackles costly competition for talent.

Analysts had forecast a fourth quarter loss and shares in Germany’s largest bank rose by more than 5% after the surprise finale to 2021, which marked the second straight annual profit following years of losses.

Deutsche had to pay up to keep its traders and dealmakers on board, with compensation at its investment bank soaring 30% in the final quarter. Bank executives said they were worried about an “intense war” for talent and Deutsche has a long way to go to cut expenses, even as investment bank revenue may decline this year.

Nevertheless, the results represent a milestone for Sewing, who was promoted to the top job in 2018 to turn Deutsche around after a series of embarrassing and costly regulatory failings.

“You all know how turbulent the years between 2016 and 2018 were for our bank. Back then, we seemed to have entered a downward spiral,” Sewing told reporters on Thursday.

“The downward spiral turned into an upward spiral,” he said.

Deutsche’s shares, which are up by more than 30% over the past year, were 5.1% higher at 1213 GMT after it said net profit attributable to shareholders was 145 million euros ($163 million) in the three months ended Dec. 31. That compared with a profit of 51 million euros a year earlier and contrasted with analyst expectations for a loss of around 130 million euros.

The fourth quarter was the sixth consecutive in the black, the bank’s longest positive streak since 2012. Deutsche made a profit of 1.94 billion euros in 2021, up from 113 million euros a year earlier, although it has still lost more than 10 billion euros over the past decade.

Regulators are still keeping a close eye on the bank, one of the most important for the global financial system. Sewing confirmed Deutsche was on track to achieve a key profitability target in 2022, a return on tangible equity of 8% that many analysts have forecast the bank will miss.

Analysts at Citigroup, which has a sell rating on Deutsche, said the bank was “overly optimistic” and that it did not see anything in the fourth quarter to change this view. JPMorgan, which has an overweight rating, said the results were mixed, but the “future is going in the right direction.”

Deutsche is far from its goal of a cost-to-income ratio of 70% by the end of 2022. It stood at 94.3% in the fourth quarter. On the whole, investors expect Deutsche to deliver profits in 2022 and 2023, consensus forecasts show.

Sewing said the March strategy announcements would be an evolution of the bank’s current stance, focusing on growth. The question of a possible tie-up with another lender has been in the air since Deutsche ended merger talks in 2019 with Commerzbank. But Sewing said he wasn’t thinking about mergers and acquisitions for 2022.