The FINANCIAL — John Cryan, Chief Executive Officer, said: “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.”
Group net revenues in the third quarter 2016 increased 2% to EUR 7.5 billion.
Revenues in the Private, Wealth and Commercial Clients segment benefitted from the absence of a charge related to Hua Xia Bank Co. Ltd. taken in the prior year quarter, and Asset Management revenues included strong positive mark-to-market movements on policyholder positions in Abbey Life. The revenue increase is driven primarily by 10% year-over-year growth in Global Markets, while absent the aforementioned effects, revenues declined in all other operating businesses, largely reflecting impact of the ongoing low interest rate environment, according to Deutsche Bank.
Provisions for credit losses increased 58% in the third quarter 2016 to EUR 327 million. This mainly resulted from higher provisions in CIB reflecting continued market weakness in the Shipping and Oil & Gas sectors.
Noninterest expenses were EUR 6.5 billion in the third quarter 2016, a 50% decrease from the prior year period. The third quarter 2015 included a charge for impairment of goodwill and other intangible assets of EUR 5.8 billion. Litigation expenses and performance-related compensation were lower than the prior year, which was partially offset by higher IT costs.
Third quarter 2016 net income was EUR 278 million compared to a loss of EUR 6.0 billion in the prior period, which included the previously noted charge related to Hua Xia Bank Co. Ltd. and impairments of EUR 5.8 billion.
The Common Equity Tier 1 (CET1) capital ratio rose to 11.1% on a fully loaded basis in the quarter. Fully loaded CET1 capital declined to EUR 42.9 billion as the positive effect of net income and equity compensation was offset mainly from the impact of a lower discount rate on pensions, higher deductions for intangibles and negative impact of Abbey Life sale agreement. However, Risk Weighted Assets (RWA) declined EUR 18 billion to EUR 385 billion, primarily from reduction in RWA in the Non-Core Operations Unit and Global Markets.
CRD4 Leverage Ratio increased to 3.5% on a fully loaded basis primarily from a EUR 60 billion decline in leverage exposure to EUR 1,354 billion in the third quarter.
Global Markets (GM) net revenues were EUR 2.6 billion in the third quarter 2016, a 10% increase from the prior year period. Higher revenues were driven by the Credit and Rates businesses. Revenues in Emerging Markets, Asia Pacific Local Markets and Equities decreased in the quarter while Foreign Exchange revenues were unchanged.
Noninterest expenses in GM were EUR 2.2 billion in the third quarter. This was a 49% decline from the prior year period, which included an impairment charge of EUR 1.6 billion for goodwill. The remaining noninterest expense decrease primarily reflected lower litigation and compensation and benefit costs.
GM reported income before income taxes in the third quarter 2016 of EUR 330 million, with a post-tax return on tangible equity of 3.7%.
Corporate & Investment Banking revenues in the third quarter 2016 were EUR 2.0 billion, a 1% decline from the prior year period. Corporate Finance revenues increased 4% as both Equity Origination and Debt Origination revenues were higher, offsetting a year-over-year decline in Advisory revenues. Transaction banking revenues were down 5% largely driven by weaker demand and interest-rate driven margin pressure in our trade and corporate cash management business.
Provisions for Credit Losses in CIB increased EUR 87 million in the third quarter 2016 to EUR 176 million. The majority of this increase was related to the Shipping and Oil & Gas industries.
Noninterest expenses in CIB decreased 45% to EUR 1,147 million in the third quarter 2016, largely related to EUR 783 million of charges in the prior year period for intangible impairments and litigation. Expenses excluding those items were 12% lower primarily from reduced compensation expenses.
CIB income before income taxes was EUR 640 million in the third quarter 2016, with a post-tax return on tangible equity of 15.4%.
Net revenues in PW&CC increased 20% to EUR 1.7 billion in the third quarter 2016. This increase largely reflected the absence of a negative net valuation impact on the Hua Xia Bank Co. Ltd. stake of EUR 0.5 billion taken in the prior year period against reported revenues. Prior year revenues also benefitted from an extraordinary dividend of approximately EUR 100 million received from a holding in the Private & Commercial Client (PCC) business. Absent those items, revenues declined approximately 5% from the prior year period largely reflecting the continued low interest rate environment and lower client activity.
Provisions for Credit Losses in PW&CC were EUR 57 million, 5% higher than the prior year but still at a low level reflecting the high quality of the portfolio.
Noninterest expenses of EUR 1.6 billion declined by EUR 965 million from the prior year period, which included an impairment of goodwill of EUR 1.0 billion. Excluding the impact of the prior period impairment, noninterest expenses increased 3% reflecting costs associated primarily with digitalisation investments and the implementation of the bank’s Strategy 2020.
PW&CC income before income taxes was EUR 117 million with a post-tax return on tangible equity of 4.2%.
Excluding the impact of mark-to market movements on policyholder positions in Abbey Life, Deutsche Asset Management (Deutsche AM) net revenues in the third quarter 2016 of EUR 628 million declined 8% from the prior year period. The decline reflected lower Active and Passive management fees partly due to net outflows of invested assets, whilst other revenues from Alternatives were lower.
Deutsche AM noninterest expenses excluding the effect of policyholder benefits and claims in Abbey Life declined 15% to EUR 440 million in the third quarter 2016, largely reflecting lower compensation and benefit expense.
Deutsche AM income before income taxes in the third quarter 2016 was EUR 216 million with a post-tax return on tangible equity of 33.3 percent.
Postbank net revenues in the third quarter 2016 declined 7% to EUR 779 million from the prior year period, largely reflecting the continued low interest rate environment.
Provision for Credit Losses declined 30% to EUR 45 million, reflecting the continued benign economic environment in Germany.
Postbank noninterest expenses were EUR 665 million in the third quarter, down EUR 2.6 billion from the prior year period, which included an impairment of goodwill and intangibles of EUR 2.6 billion. Excluding the impact of the prior year impairment, noninterest expenses were broadly flat despite ongoing investment expenses for digitalisation and implementation of the bank’s strategy.
Postbank income before income taxes in the third quarter 2016 was EUR 68 million with a post-tax return on tangible equity of 3.1%.
Net revenues in the Non-Core Operations Unit were EUR (191) million in the third quarter 2016. NCOU continued to focus on de-risking in the quarter resulting in RWA of EUR 18 billion, a 55% reduction versus the prior year period.
NCOU noninterest expenses in the third quarter declined 23% to EUR 330 million, driven by the impact of asset sales.
NCOU income before income taxes was EUR (538) million in the third quarter, largely reflecting costs related to the de-risking activities of the unit.
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