The interim results are better than expected. Deutsche Bank owes this primarily to one division. The breakdowns at Postbank, however, have not been completely digested.
Savings efforts and bubbling earnings in the capital market business brought Deutsche Bank billions in profit at the start of the year. At the same time, Germany’s largest financial institution is preparing for further setbacks in the commercial real estate market and as a result of the IT breakdowns at Postbank. However, management assumes that these burdens will decrease over the course of the year, said CFO James von Moltke in a conference call on Thursday.
Pre-tax profit increased by ten percent to just over two billion euros in the first three months of 2024 compared to the same quarter of the previous year. The bottom line is that the shareholders of the Frankfurt DAX group received a net profit of around 1.3 billion euros – also ten percent more than a year ago. Overall, this is the “best result since 2013,” said CEO Christian Sewing.
However, Deutsche Bank must “earn the trust of its customers every day” in order to achieve the goal of “returning to the top of the European banks in the medium term,” Sewing wrote to the workforce.
More cleanup work at the Postbank
The image was recently damaged by breakdowns at Postbank, which is part of the group. The transfer of customer business to Deutsche Bank’s computer systems last year did not go smoothly. Customers were temporarily unable to access their accounts, construction financing was delayed, and people with accounts protected from seizure were temporarily unable to access urgently needed money.
Because the problems dragged on for months, the financial regulator Bafin sent a special representative to the institute. At the end of March 2024, the bank said it had finally cleared the backlog of customer-critical processes. However, the financial institution still sees room for improvement when it comes to service quality.
There are still a few things that need to be “cleaned up” at Postbank, said CFO von Moltke. “There are some remaining non-customer issues that we will resolve in the second quarter.” The recent warning strikes at Postbank as part of the current collective bargaining round could also have led to further delays in customer service. Von Moltke does not want to reveal how many Postbank customers have been compensated so far and how much money has been spent. Overall, according to him, the chaos at Postbank is likely to cost Deutsche Bank around 100 million euros.
More precautions for possible setbacks
Among other things, Deutsche Bank set aside 439 million euros in the first quarter, 18 percent more than a year earlier, to cover the problems at Postbank and possible loan defaults in the wake of the crisis on the office and commercial property markets, especially in the USA. For the year as a whole, the group expects risk provisions to be roughly at the same level as the previous year; in 2023 it was 1.5 billion euros.
When it comes to costs, the board is on the brakes. It was only at the beginning of February that CEO Sewing announced that 3,500 jobs would be cut by the end of 2025. This includes 800 jobs that the bank had already announced last year. Jobs will be cut primarily in areas that do not have direct contact with customers. The sales network in Germany will be streamlined and internal processes will be simplified and automated. The bank estimated the savings from “completed efficiency measures” at 1.4 billion euros at the end of the first quarter.
The tailwind from the sharp rise in interest rates, from which Deutsche Bank and other financial institutions benefit, has already subsided somewhat, as the interim balance for the first quarter shows. However, Germany’s largest financial institution was able to compensate for the lower net interest income through increasing commission income in all business areas. The investment bank in particular, with its flourishing bond and currency trading, ensured that earnings – i.e. the group’s total income – were slightly above the level of the same period last year at around 7.8 billion euros.
Deutsche Bank Q1/2024 Deutsche Bank boss Sewing on Q1/2024 Deutsche Bank Q1/2023 Annual reports Deutsche Bank analyst estimates Deutsche Bank overview Deutsche Bank on the strategy Bafin on problems at Postbank September 4th, 2023 Interim reports Deutsche Bank Deutsche Bank annual balance 2023 Bafin on special representative 10/2/2023
Source: Stern
