FRANKFURT (Reuters) – Deutsche Bank posted a better-than-expected 17% rise in first-quarter profit on Wednesday as investment banking revenues climbed, but its share price fell as it warned that the Russia-Ukraine conflict could hurt annual earnings.
This year is crucial for Germany’s largest lender and Chief Executive Christian Sewing as he tries to deliver on targets he set out in a costly overhaul of the bank embarked upon in 2019.
He told analysts the conflict “has the potential to impact our full-year results in our important measurement year.”
Shares traded 5% lower early in Frankfurt.
The quarterly earnings were a boost for Sewing, who was promoted to the top job in 2018 to turn Deutsche around after a series of embarrassing and costly regulatory failings.
Net profit attributable to shareholders came in at 1.06 billion euros ($1.12 billion), better than analyst expectations of around 950 million euros.
It was a seventh consecutive quarter of profit, the bank’s longest streak in the black since 2012, and marks its highest quarterly income since 2014.
The bank said it was sticking to its annual targets for now, but warned “the current environment is increasingly challenging, and cost pressures have intensified”.
It said funds set aside for credit losses were expected to rise “significantly” this year due to the war and slower growth.
Chief Financial Officer James von Moltke told journalists the race for talent could also put pressure on costs.
Investors have questioned whether the bank will meet its key target – a return on tangible equity of 8% – this year, but the bank said it was well positioned to achieve the goal.
The strong quarter came as some of its biggest investors, including the U.S. Capital Group and Cerberus, have shed their stakes, raising questions about its prospects.
Analysts with JPMorgan noted costs were elevated but said the results were overall positive.
Deutsche Bank has lost more than 9 billion euros over the past decade, and its health remains under the close watch of regulators as one of the world’s most important banks for the financial system.
Russia’s invasion of Ukraine has cast a pall over the bank because of Germany’s links to the Russian economy and its own operations there.
Deutsche – like its U.S. competitors – was hurt by declines in dealmaking amid the uncertainty created by the war, although trading held up because of volatile markets.
Revenue from the investment bank’s origination and advisory business declined 28% in the quarter, while revenue for fixed-income and currency trading, one of the bank’s largest divisions, rose 15%.
Deutsche said it now expected revenues at the division to be “slightly higher” this year compared to last. It have previously forecast they would be “essentially flat”.
($1 = 0.9435 euros)
(Reporting by Tom Sims and Frank Siebelt; Additional reporting by Alexander Kloss; Editing by Edwina Gibbs and Edmund Blair)
