The biggest German lender has surprised the market with better-than-expected profits but failed to deal with uncertainty around the $14 billion fine from the U.S. DoJ that prompted many clients to withdraw billions of euros this quarter.
The troubled bank made the long-awaited announcement of the results of this difficult quarter earlier today. The lender reported its net profits to be at €278 million ($303 million) this quarter, which is a very good result compared to last year's €6 billion in losses. Net profits outperformed the analysts' expectations of €610 million in losses, as did Deutsche Bank's (NYSE: Deutsche Bank [DB]) revenues that amounted to €7.49 billion ($8.17 billion).
The experts attribute the better-than-expected profits to a modest activity bond trading in this quarter that showed an improvement across the whole banking sector. The Wall Street Journal adds that Deutsche Bank's litigation and restructuring costs were lower than expected thanks to the decline in employee compensation, resulted from the major restructuring program within the bank. The bank reported having about €5.9 billion in its litigation reserves dedicated to covering the multiple legal expenses including those related to RMBS case of the U.S. Department of Justice.
"The results for the quarter demonstrate well the strengths of our operating businesses and the outstanding work of our people. We continued to make good progress on restructuring the bank. However, in the past several weeks, these positive developments were overshadowed by the attention around our negotiations concerning the Residential Mortgage Backed Securities matter in the United States. This had an unsettling effect. The bank is working hard on achieving a resolution of this issue as soon as possible," Deutsche CEO John Cryan said in the earnings report.
The results were announced before the market opening in Europe, what gave DB stock an uplift in the morning's trading session. The shares shortly jumped to the one-month high level and then settled at about €13.30, 0.7% higher than before. This is still a relatively small improvement, considering that Deutsche Bank's shares lost almost half of the value this year.
Even though the bank has managed to close the quarter with some positive results, the impact of the dispute around the illegal management of the residential mortgage-backed securities imposed on the bank by the U.S. DoJ still remains strong. Reuters reported that Deutsche Bank had €9 billion withdrawn by the clients of its retail and wealth management sector during Q3 in the light of this dispute.
Cryan addressed the bank's staff in a letter earlier today saying that the situation "will stay difficult for a while" and he will intensify the restructuring process.
“We aim to be more ambitious in headcount reduction, as you can see from our decision to introduce extensive hiring restrictions. If and where it is absolutely necessary to fill positions, we will give preference to internal candidates,” he wrote.