First quarter 2020 results ahead of expectations
Deutsche Bank expects to report group profit before tax of 206 million euros and net income of 66 million euros, above market expectations.
Revenues are expected to be 6.4 billion euros with noninterest expenses of 5.6 billion euros, including contributions to the Single Resolution Fund of 0.5 billion euros. Provisions for credit losses are expected to be 0.5 billion euros, or 44 basis points of loans. Consensus estimates showed a wide range around each of these results.
Deutsche Bank’s Common Equity Tier 1 (CET1) ratio was 12.8% at quarter end, down from 13.6% at year end. The decline in the CET1 ratio in the quarter included approximately a 30 basis points negative impact from the revised securitization framework as expected, and approximately 40 basis points of items precipitated by the COVID-19 pandemic.
Updating financial targets to support clients and the economy
In anticipation of business opportunities and elevated client demand and in light of the current macroeconomic environment, Deutsche Bank is reviewing its 2020 CET1 and leverage ratio targets. Management has made the clear decision to allow capital to fall modestly and temporarily below its target in order to support clients and the broader economy at this time of economic crisis.
The bank’s CET1 ratio of 12.8% at quarter end was approximately 240 basis points above its current pillar 2 regulatory requirement. This has been lowered from 11.6% at 1 January 2020 to 10.4%, following the ECB’s early implementation of CRD V Article 104(a) and the reduction of the Counter-Cyclical Capital Buffer. A reduction in capital requirements reduces the level below which the bank would be required to calculate a Maximum Distributable Amount (MDA). The MDA is used to determine restrictions on distributions on CET1 capital and Additional Tier 1 instruments.
The short-term implications of the COVID-19 pandemic make it difficult for the bank to accurately reflect the timing and the magnitude of changes to its original capital plan. Deutsche Bank’s priority is to stand by its clients without compromising on capital strength. It is therefore possible that the bank will fall modestly and temporarily below its previous CET1 target of at least 12.5%. Deutsche Bank remains committed to maintaining a significant buffer above its regulatory requirements at all times. This revised outlook acknowledges that credit extension to support clients at this time could increase risk weighted assets for several quarters. In addition, there are a series of pending and proposed regulatory adjustments which could improve the bank’s reported CET1 ratio.
This potential additional balance sheet growth also means that the bank is unlikely to reach its 2020 fully-loaded leverage ratio target of 4.5%, absent regulatory adjustments to the leverage ratio calculation which may increase the banks reported ratio.
Given the temporary nature of the aforementioned capital items, the bank will continue to work towards its 2022 targets of a 12.5% CET1 ratio target and 5% leverage ratio.
Deutsche Bank reaffirms its other financial targets, including for 2020 adjusted costs excluding transformation charges and reimbursable expenses associated with the transfer of the Prime Finance platform to BNP Paribas of 19.5 billion euros.
Christian Sewing, Chief Executive Officer, said: “We’re very satisfied that our first-quarter results demonstrate the progress we’re making with the transformation of our bank, the operating strength of our business, and our resilience. We owe this to the outstanding efforts of our staff. We are firmly committed to mobilising our balance sheet to support our clients, who need us now even more. Our decision to do so means that our Common Equity Tier 1 ratio may temporarily dip below our target minimum of 12.5%, without weakening our strong balance sheet. With our current ratio of 12.8%, we are comfortably above our minimum requirement of 10.4%. We’re convinced that this is in the best interests of all our stakeholders.”
Full details of Deutsche Bank’s first quarter results will be disclosed as planned on April 29, 2020. Results are prepared in accordance with IFRS as adopted by the EU.