Deutsche Bank Reports Strong Nine-Month 2023 Profit Before Tax and Boosts Capital Outlook

By IndraStra Global Editorial Team

Cover Image Attribute: Deutsche Bank Twin Towers in Frankfurt, Germany / Source: Wikimedia Commons

 Deutsche Bank has released its nine-month 2023 financial results, showcasing a resilient performance in the face of challenging market conditions. The bank reported a profit before tax of €5.0 billion, marking a 3% increase compared to the same period in 2022. These results highlight the institution's sustained momentum in business growth, driven by revenue expansion and a commitment to cost discipline.
The bank also announced its intention to significantly increase share buybacks in the coming year, potentially exceeding the previously projected capital returns to investors. This bold move by Germany's largest lender prompted a remarkable 7% surge in its share value. The upbeat outlook on potential payouts coincided with Deutsche Bank's better-than-anticipated 8% decline in third-quarter profits. Simultaneously, the bank's leadership hinted at impending staff reductions.

Solid Revenue Growth and Cost Efficiency

One of the standout features of Deutsche Bank's performance is its robust revenue growth. Net revenues for the nine months climbed 6% year-on-year, reaching €22.2 billion. This increase was achieved despite a 7% uptick in noninterest expenses, which totaled €16.2 billion. These expenses included nonoperating costs of €943 million.
Of particular note is the bank's ability to manage its adjusted costs effectively. Despite inflationary pressures, adjusted costs rose by only 2%, reaching €15.3 billion. The post-tax profit for this period came in at €3.5 billion, a 6% decline mainly attributable to a higher tax rate. The post-tax return on tangible equity (RoTE) for the first nine months was 7%, with a cost/income ratio of 73%. When adjusted for these costs, the post-tax RoTE improved to 9%, with a cost/income ratio of 68%.

Capital Strength and Distribution Goals

Deutsche Bank's impressive capital management has been a linchpin of its performance. The Common Equity Tier 1 (CET1) ratio, which serves as a key indicator of a bank's capital strength, increased to 13.9%. This growth occurred despite absorbing regulatory impacts of 38 basis points and share buybacks. This robust capital position offers the bank significant flexibility in fueling its growth and expanding its distribution goals.
In fact, the bank has identified potential to free up an additional ~€3 billion of capital through various strategies, including an increased reduction in risk-weighted assets (RWA) and updated Basel III estimates through 2025. As of 2023, Deutsche Bank had already distributed €1.6 billion to its shareholders, demonstrating its commitment to returning value to investors.

Q3 2023 Performance

In the third quarter of 2023, Deutsche Bank reported a profit before tax of €1.7 billion, marking a 7% year-on-year increase and the highest third-quarter profit since 2006. However, the post-tax profit for this period was €1.2 billion, down by 3% due to a higher tax rate. The post-tax RoTE was 7.3%, and the cost/income ratio was 72%.

Acceleration of the Global Hausbank Strategy

Deutsche Bank has been actively executing its Global Hausbank strategy, with significant progress made in several areas:
1. Revenue Growth: The bank achieved a 6% year-on-year revenue growth for the first nine months of 2023, surpassing its target of 3.5% - 4.5%. Additionally, the acquisition of Numis, the UK corporate broker, and investments in capital-efficient, fee income-generating businesses have fueled revenue expansion. The Private Bank and Asset Management saw €39 billion in net inflows, contributing to a substantial growth in assets under management.
2. Operational Efficiency: The bank is working toward achieving incremental operational efficiencies of €2.5 billion annually by 2025. Initiatives such as reducing headcount in non-client-facing staff have been executed, and further workforce efficiency measures are in progress. The bank is also streamlining processes and optimizing its distribution network.
3. Capital Efficiency: Deutsche Bank has already achieved around €10 billion of its €15-20 billion RWA optimization target for 2025, with no significant impact on revenues. The bank has identified further potential for RWA reduction by €10 billion, reaching a target of €25-30 billion. Moreover, the impact of Basel III requirements is expected to be €10-15 billion lower than originally estimated. These factors could free up an additional ~€3 billion in capital through 2025.

Revenue Growth by Business Segment

Deutsche Bank's revenue growth across its business segments for the third quarter and the first nine months of 2023 is as follows:

• Corporate Bank: Net revenues reached €1.9 billion in the third quarter, representing a 21% year-on-year increase. All segments in this category experienced double-digit growth.

• Investment Bank: Net revenues were €2.3 billion in the quarter, with a slight 4% year-on-year decrease due to a reduction in DVA benefits.

• Private Bank: Net revenues for this segment were €2.3 billion in the third quarter, demonstrating a 3% year-on-year increase.

• Asset Management: Net revenues reached €594 million in the third quarter, down 10% year on year.

Modest Rise in Noninterest Expenses

Noninterest expenses for the third quarter were €5.2 billion, a 4% increase year on year, partially due to nonoperating costs, including litigation charges and restructuring expenses. Adjusted costs, which exclude these items, were €5.0 billion, reflecting a 2% increase.
The bank's workforce increased by 2,204 internal full-time equivalents (FTEs) to 89,260 during the quarter, driven by strategic hiring and workforce efficiency measures.

Credit Provisions and Capital Resilience

Provision for credit losses in the third quarter was €245 million, down from €401 million in the second quarter. This decline was primarily due to provision releases for performing loans and slight increases in provision for non-performing loans.

Strong Liquidity and Funding Position

Deutsche Bank continues to maintain a robust liquidity position with liquidity reserves of €245 billion at the end of the third quarter, exceeding regulatory requirements. The Liquidity Coverage Ratio was 132%, representing a surplus of €51 billion, while the Net Stable Funding Ratio was 121%.



EDITORIAL NOTE:  Deutsche Bank's nine-month financial results underscore its ability to navigate a challenging economic landscape, leverage its strong capital position for growth, and deliver value to its shareholders. As Deutsche Bank sets its sights on increased capital returns and continues to adapt to shifting market conditions, the world will be watching closely to see how these strategies unfold.  

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