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Deutsche Bank Tumbles After Abysmal Trading Results

Deutsche Bank shares tumbled 4% on Thursday after reporting better than expected earnings, driven by provisions and dramatic cost-cutting, more than offset however by a sharp drop in overall company revenue which slumped to the lowest in three and a half years, as Investment Banking revenue slumped 16%, while FICC tumbled a whopping 12% Y/Y and 30% Q/Q, with CEO John Cryan taking a page out of the Goldman playbook and blaming "muted client activity."

The biggest German bank said Thursday net income was stronger than expected €466 million ($548 million), compared with €20 million for the same period a year earlier, while Q2 pretax profit was €822 million, beating estimates of €717 million. However, DB company wide revenue of €6.616BN declined 10% from last year's €7.146BN, missing consensus estimates. Its non interest expenses last year were down 15% from a year ago.

Profit was modestly boosted by lower provisions for credit losses, which fell 70 percent from a year earlier, as well as a 6 percent decline in adjusted costs. That’s better than analysts had expected, according to Morgan Stanley, which called the results “mixed” in a note to clients.

The report dragged DB shares lower as much as 4.7%, the biggest drop since March 6, and were trading just shy of €16 last. Investors were most concerned by the poor business performance as Deutsche's biggest division, investment banking, suffered worse-than-expected revenue declines in most key areas, from securities trading to trade financing.

Chief Executive John Cryan said “muted client activity in many of the capital markets” hurt the lender. That's one way of putting it; another was bloodbath as net revenues were down as follows:

  • 16% in investment banking, which includes deal-advising, securities issuance and trading.
  • 7% in private and retail-banking
  • 4% in asset management

Having hobbled its trading group in recent years with mass terminations and lack of trader bonuses, the results, or lack thereof, finally emerged today as Europe's largest bank posted dismal results in what was once its strongest division. Overall trading revenue across debt, interest rate products, currencies and equities was down 18% last quarter. The fixed-income piece of that business, the most important for Deutsche Bank, performed roughly in line with big U.S. rivals during what was broadly a rough quarter for debt trading. Deutsche Bank’s fixed-income trading revenue was down 12%. However, unlike U.S. banks, Deutsche Bank failed to get a boost from clients’ stock-trading the WSJ reported, and as a result the German bank’s equities-trading revenue fell 28% from a year earlier.

The CEO scaled back the debt trading business since taking over in 2015, and made efforts to improve controls and compliance after losses and misconduct fines. But problems with the bank’s risk management practices resurfaced last month when its traders were on course to lose as much as $60 million in a wrong-way derivatives bet on inflation.

“In equities we’ve lost a bit...