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Deutsche Bank Slogs While Investment Banking Rivals Soar

MARKETWATCH 8:15 AM ET 4/27/2017
Symbol Last Price Change
DB 18.275up -0.565 (-3%)
QUOTES AS OF 09:35:46 AM ET 04/27/2017

If Deutsche Bank(DB) has found the right balance in investment banking, it is hard to spot the benefits.

The German group failed to catch the same market recovery (https://www.wsj.com/articles/deutsche-bank-profit-more- than-doubles-1493272482)that boosted bond trading at U.S. rivals and Credit Suisse(CSGN.EB) in the first quarter, while the improvement in its revenues from work on deals and fund raising also lagged rivals.

The first quarter of 2016 was rough for investment banks globally, with a series of economic concerns combining to hit activity, so the start of this year had been widely expected to drive a big recovery.

Deutsche's rivals got it: Fixed-income trading revenues at U.S. banks were up by 24% in the first quarter of 2017 versus the same period last year and Credit Suisse's rose 30% (https://www.wsj.com/articles/credit-suisses-smarter-plan- to-raise-capital-1493208315), including Asia and its solutions business where it trades interest rates and currencies. Deutsche Bank's(DB) bond trading was just 11% higher.

The bank missed the rebound in U.S. mortgage-bond trading, which helped its Swiss rival and some U.S. banks, because it quit that business (https://www.wsj.com/articles/deutsche-bank-better-hope-boring-beats-sexy-1490018746). Also, Deutsche did enjoy a big rebound in leveraged loans--high-yield debt commonly used by private equity groups--but reports that activity in a different division to Credit Suisse, which includes it in bond trading.

Still, taking Deutsche's markets and investment banking units in total, revenues were down 4% versus the first quarter of 2016. Granted, part of the revenue loss is down to the perverse accounting effects of Deutsche becoming safer: a fall in its own funding costs, reflected in a much lower cost to protect its bonds against default, cut its revenues. Even taking that into account, revenues were only higher by 3.5%.

However you look at it, Deutsche endured an unexpectedly sluggish first quarter. The market reacted by sending its shares down 3%. Investors backed management with an EUR8 billion capital injection (https://www.wsj.com/articles/ deutsche-bank-big-capital-call-offers-little-long-term-reward-1488744814) this month. It looks a long, hard slog before they will get a return on that money.

Write to Paul J. Davies at [e-mail] (mailto:[e-mail])

-Paul J. Davies; 415-439-6400; [e-mail]


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