Net income of € 828 million with post-tax return on tangible equity (RoTE)¹ of 5.5%
Transformation drives second-quarter profit growth
- Core Bank: profit before tax rises 90% to € 1.4 billion
- Post-tax RoTE¹ of 7.8% with cost/income ratio¹ of 76%
- Capital Release Unit reduces quarterly loss before tax by 56% to € 258 million
Net revenues of €6.2 billion, down 1% as markets normalise in second quarter
Further progress on costs in the quarter
- Noninterest expenses down 7% year on year to € 5.0 billion
- Adjusted costs ex-transformation charges¹ of € 4.6 billion, down 6%
Continued capital, balance sheet and risk discipline
- Common Equity Tier 1 (CET1) ratio of 13.2%, down from 13.7% quarter on quarter, reflecting anticipated regulatory effects on risk weighted assets (RWAs)
- Provision for credit losses of € 75 million, down 90% year on year
- Capital Release Unit further reduces RWAs to € 32 billion, in line with end-2022 target, and cuts leverage exposure by € 10 billion to € 71 billion
Business growth includes record net inflows of € 27 billion into investment products
- Asset Management: record net inflows of € 20 billion help lift Assets under Management by € 39 billion to € 859 billion
- Private Bank: net new business volumes of € 14 billion include net inflows into investment products of € 7 billion
Sustainability: outperformance driven by a record quarter
- Record quarterly ESG financing and investment volumes of € 27 billion
- Cumulative volumes rise to € 99 billion, on path to end-2023 target of € 200+ billion
First half-year 2021: progress toward 2022 ambitions
- Net revenues up 7% to € 13.5 billion year on year
- Provision for credit losses down 89% to € 144 million, or 7 basis points of loans
- Adjusted costs ex-transformation charges and reimbursable expenses related to Prime Finance1 down 4% to € 9.8 billion
- Group profit before tax of € 2.8 billion, up seven-fold, with net profit of € 1.9 billion
- Post-tax RoTE¹ of 6.5% with cost/income ratio reduced to 78%Core Bank profit before tax of € 3.4 billion, up 99%
- Post-tax RoTE¹ of 9.3%, in line with 2022 target, and cost/income ratio of 73%
Our pre-tax profit of € 1.2 billion in the second quarter demonstrates that we’re well on the path toward our goal for a post-tax RoTE1 of 8% next year. All our businesses have contributed to the year-on-year profit growth, gained further relevance for our clients and continued to capture market share. Once again, our cost and risk management provided us with firm foundations. Our priority now is to continue with our disciplined execution of transformation, quarter by quarter.
Deutsche Bank (XETRA: DBKGn.DB / NYSE: DB) today reported its best second quarter and best first half year since 2015. Significant year on year profit improvement across all businesses was driven by resilient revenues, sustained progress on cost reduction and substantial year on year improvements in provision for credit losses.
Across the board profit improvement
Group profit before tax was € 1.2 billion in the second quarter of 2021, versus € 158 million in the second quarter of 2020. Net profit was € 828 million, up from € 61 million in the prior year quarter. Post-tax return on average shareholders’ equity was 4.9% and post-tax RoTE1 was 5.5% in the quarter. The cost/income ratio was 80%, down from 85% in the prior year quarter.
The quarter reflected a negative impact on profit before tax of € 226 million from the ruling by the German Federal Court of Justice (Bundesgerichtshof or ‘BGH’) in April 2021 requiring active customer consent for pricing changes on current accounts (for more information on this ruling, please see the ‘Provisions’ section of the Interim Report). This included an impact of € 96 million in foregone revenues, of which € 93 million was in the Private Bank Germany with the balance in the International Private Bank and Corporate Bank. The cost impact was € 130 million in litigation expenses, also predominantly in the Private Bank.
For the first six months of 2021, profit before tax was € 2.8 billion, up from € 364 million in the same period of 2020. Net profit was € 1.9 billion, up from € 126 million in the prior year period. Post-tax RoTE1 was 6.5%, and 7.6% if adjusted for transformation-related effects1 and specific revenue items. The cost/income ratio was 78%, down from 87% in the first six months of 2020.
In the Core Bank, which excludes the Capital Release Unit, second-quarter profit before tax rose 90% to € 1.4 billion. All four core businesses contributed to this year on year improvement in profitability. Post-tax RoTE1 was 7.8%, up from 3.4% in the prior year quarter, while the cost/income ratio was 76%. Adjusted profit before tax, which excludes specific revenue items, transformation charges, impairments of goodwill and intangibles and restructuring and severance, rose 72% to € 1.6 billion.
For the first six months, Core Bank profit before tax near-doubled to € 3.4 billion. Post-tax RoTE1 was 9.3%, in line with the Core Bank’s full-year 2022 target, and 10.5% if adjusted for transformation-related effects1 and specific revenue items. The cost/income ratio was 73%, down from 77% in the prior year period.
Capital Release Unit: significant loss reduction
The Capital Release Unit reported a loss before tax of € 258 million in the quarter, down by 56% from a loss of € 591 million in the second quarter of 2020. The adjusted loss before tax was € 236 million, down 54% year on year. This improvement was driven primarily by cost reduction: noninterest expenses were down 48% year on year to € 259 million, while adjusted costs ex-transformation charges1 were down 45% to € 236 million. Net revenues were negative €24 million, an improvement versus negative € 66 million in the prior year quarter.
The Capital Release Unit further reduced RWAs and leverage exposure. RWAs were reduced from € 34 billion to € 32 billion during the quarter, in line with the Unit’s end-2022 target, and a reduction of 24% over the past twelve months. The Unit reduced leverage exposure by € 10 billion to € 71 billion during the quarter, and by 30% versus the end of the second quarter of 2020.
For the first six months, the Capital Release Unit reported a loss before tax of € 668 million, a reduction of more than half versus the € 1.4 billion loss before tax in the first six months of 2020. This improvement was driven largely by a 36% year on year reduction in noninterest expenses to € 757 million, while adjusted costs ex-transformation charges were reduced by 40% to € 658 million. Net revenues were € 57 million for the first six months, an improvement of € 180 million versus the first six months of 2020.
Revenues: resilience despite market normalisation and specific effects
Group net revenues were € 6.2 billion, down 1% versus the second quarter of 2020. Revenue development in the quarter reflected the normalisation of financial markets compared to the prior year quarter, continued low interest rates, and the impact of foregone revenues due to the BGH ruling. Revenues in the Core Bank were € 6.3 billion, down 1%.
For the first six months, Group net revenues grew 7% to € 13.5 billion, while Core Bank net revenues grew 5% to € 13.4 billion.
Second quarter revenue development in Deutsche Bank’s core businesses was as follows:
- Corporate Bank net revenues were € 1.2 billion, down 8% year on year, or down 6% if adjusted for currency translation effects. Net revenues were essentially unchanged versus the prior year quarter if adjusted for episodic items, including recoveries related to credit protection and portfolio rebalancing actions, which were substantially lower than in the second quarter of 2020. Interest rate headwinds were offset by the positive effects of business growth and further progress on deposit re-pricing, which covered accounts with deposits of € 87 billion, up from € 83 billion at the end of the previous quarter and contributing € 85 million in quarterly net revenues. Deutsche Bank also recaptured the No. 1 position for German Corporate Banking in FINANCE-Magazin’s annual survey. For the first six months, net revenues were € 2.5 billion, down 5% year on year, reflecting the aforementioned factors impacting the second quarter.
- Investment Bank net revenues were € 2.4 billion, down 11%. Revenues in Fixed Income & Currencies (FIC) were € 1.8 billion, down 11%. This development largely reflected the anticipated normalisation of financial market activity compared to the second quarter of 2020, which impacted revenues in Rates, Emerging Markets and FX. This was partly offset by strong year on year growth in Credit, both Trading and Financing. Origination & Advisory revenues were 2% higher at € 624 million. Advisory revenues were more than double the prior year quarter, driven by higher M&A activity, while lower levels of Investment Grade Debt issuance in normalising markets more than offset growth and market share gains (source: Dealogic) in Leveraged Debt Capital Markets. Deutsche Bank returned to the No. 1 position in Origination & Advisory in Germany in the quarter (source: Dealogic). For the first six months, Investment Bank net revenues were up 9% to € 5.5 billion.
- Private Bank net revenues were € 2.0 billion, up 3% versus the prior year quarter, and up 8% if adjusted for the impact of the BGH ruling. Continued business growth in improved market conditions more than offset pressure on deposit margins from low interest rates. New business volumes of € 14 billion in the quarter included € 4 billion in net new client loans and € 7 billion in net inflows of investment products, the sixth consecutive quarter of net inflows into investment products. Revenues in the Private Bank Germany were down 1%, and up 7% if adjusted for the € 93 million impact of the BGH ruling. Revenues in the International Private Bank grew by 9%, or 8% excluding specific items. For the first six months, Private Bank net revenues rose to € 4.2 billion, up 2% year on year or up 4% if adjusted for the € 94 million impact of the BGH ruling. This increase was supported by continued new business growth, with net new business volumes of € 29 billion in the first half of 2021 including net new client loans of € 9 billion and net inflows in investment products of € 16 billion.
- Asset Management net revenues were € 626 million in the quarter, up 14%. Growth was driven primarily by 15% growth in management fees, as five consecutive quarters of client inflows and supportive market performance more than offset continued industry-wide margin pressure. Net inflows were a record € 20 billion in the quarter, driven by positive flows across asset classes in all regions, and including € 3.8 billion in Environmental, Social and Governance (ESG) assets. These record inflows and strong investment performance contributed to € 39 billion growth in Assets under Management to € 859 billion in the quarter, a new record level, and € 114 billion or 15% higher than at the end of the prior year quarter. For the first six months, net revenues grew 18% to € 1.3 billion, total net inflows were € 21 billion, and Assets under Management grew by € 67 billion.
Further cost reduction
Noninterest expenses were reduced by 7% to € 5.0 billion in the quarter, despite pressure from several external factors including the aforementioned € 130 million in litigation provisions relating to the BGH ruling. Adjusted costs ex-transformation charges were reduced by 6% year on year to € 4.6 billion.
The workforce was reduced by an additional 592 full-time equivalents (FTEs) to 83,797 during the quarter, and by approximately 3,000 FTEs over the past twelve months. At the end of the quarter, Deutsche Bank had recognised 90% of the total transformation-related effects1 anticipated through the end of 2022.
For the first six months, noninterest expenses were down 4% to € 10.6 billion. Adjusted costs ex-transformation charges1 and reimbursable expenses related to Prime Finance were down 4% to € 9.8 billion, including € 547 million in bank levies.
Sustained year on year improvement in provision for credit losses
Provision for credit losses was € 75 million in the quarter, equivalent to 7 basis points of average loans on an annualised basis, and down by 90% compared to € 761 million in the second quarter of 2020. Provisions for non-performing loans (Stage 3) were € 111 million in the quarter, down 33% on the previous quarter and down by 78% compared to the second quarter of 2020. Stage 3 provisions were offset by releases of € 36 million in provisions for performing loans (Stage 1 and 2) which reflected a positive macro-economic outlook.
For the first six months, provision for credit losses was € 144 million, or 7 basis points of average loans annualised, down from € 1.3 billion, or 57 basis points of average loans annualised, in the prior year period.
Conservative capital and balance sheet management
The Common Equity Tier 1 (CET1) capital ratio was 13.2% in the quarter, a decline of 55 basis points compared to 13.7% in the previous quarter. This development reflects a negative impact of approximately 70 basis points from the regulatory-driven increases in RWAs relating to the ECB’s Targeted Review of Internal Models (TRIM) and Capital Requirements Regulation (CRR) amendments taking effect in the quarter as expected. The TRIM decisions reflected in the second quarter conclude the multi-year TRIM programme for Deutsche Bank. These factors were partly counterbalanced by a positive impact of 12 basis points from organic capital generation through net income, after deductions for dividends, of € 274 million, and for coupons for Additional Tier 1 (AT1) instruments in the quarter. As at June 30, Deutsche Bank had deducted € 575 million for dividends from first-half 2021 earnings.
Risk Weighted Assets (RWAs) rose from € 330 billion to € 345 billion during the second quarter. This development was almost entirely due to the impact of the aforementioned TRIM decisions and CRR amendments.
The Leverage Ratio (fully-loaded) rose to 4.8% in the second quarter, up from 4.6% in the previous quarter. On a phase-in basis, the Leverage Ratio rose to 4.9%, from 4.7% in the previous quarter. These ratios exclude certain central bank balances under applicable rules. Including these balances, the fully-loaded Leverage Ratio would have been 4.3% in the quarter.
Liquidity Reserves rose € 11 billion to € 254 billion during the quarter, including High Quality Liquid Assets of € 224 billion, up by € 4 billion during the quarter. The Liquidity Coverage Ratio was 143%, a surplus over regulatory requirements of € 67 billion.
2022 ratio targets reaffirmed; guidance updated
Deutsche Bank reaffirmed its 2022 ratio targets in the light of progress made in its transformation, namely: a post-tax RoTE1 of 8% at Group level and over 9% for the Core Bank; a cost/income ratio of 70%; a Common Equity Tier 1 capital ratio of at least 12.5% and a leverage ratio (fully-loaded) of approximately 4.5%. With Deutsche Bank’s transformation significantly advanced and having evidenced sustainable profitability in the first half of 2021, management is updating cost guidance to focus on the cost/income ratio. This more accurately reflects the sustainable margin which the bank is targeting. Accordingly, the bank will no longer disclose an absolute cost target, previously € 16.7 billion, for 2022.
Deutsche Bank also provided updated guidance on the drivers of these target ratios as transformation advances. Management expects net revenues to be ahead of guidance provided at the Investor Deep Dive on December 9, 2020. The bank sees a substantial portion of its revenue growth in recent quarters as sustainable, as underpinned by strong business growth in 2021 to date and the expected gradual easing of interest rate headwinds in future quarters. Additionally, provision for credit losses is expected to be lower than previous guidance, in a range of around 20 basis points of average loans.
The bank expects these positive factors to counterbalance additional expenses due to unforeseen factors arising in 2021, including higher-than-expected contributions to the Single Resolution Fund and the German statutory deposit guarantee scheme. Management believes these items will exceed its initial plan by approximately € 400 million in total. The bank also foresees additional expenses arising from higher business volumes and investments in the control environment. In line with its firm commitment to continued discipline on controllable cost items, management has initiated a series of incremental cost reduction measures to mitigate these additional cost pressures. For more information on the bank’s financial and regulatory targets, please see the ‘Strategy’ section of the Interim Report.
Sustainable finance: record quarterly volume underpins outperformance
Deutsche Bank remains ahead of target in pursuit of its goal, of at least € 200 billion in cumulative Environmental, Social and Governance (ESG)-related financing and investments excluding DWS from the beginning of 2020 to the end of 2023. At the end of the second quarter, cumulative ESG financing and investments reached € 99 billion, close to the bank’s full-year interim goal of at least € 100 billion by end-2021.
In the second quarter, ESG financing and investment volumes were a record € 27 billion. Deutsche Bank’s businesses contributed to this total as follows:
- The Corporate Bank added € 6 billion in sustainable financing, bringing its cumulative total to € 15 billion;
- In the Investment Bank, sustainable financing and capital market issuance volumes were € 15 billion in the quarter, bringing the division’s cumulative total to € 56 billion;
- The Private Bank added € 7 billion to reach a cumulative total of € 28 billion. During the quarter, investment volumes were € 6 billion, with an additional € 1 billion in new client loans. Cumulative total volumes now stand at € 19 billion for the Private Bank Germany and € 9 billion for the International Private Bank.
During the quarter, Deutsche Bank joined the Net Zero Banking Alliance, committing to align its operational and attributable emissions from its loan portfolio with pathways to net zero by 2050. This supplements the bank’s signing of the Collective Commitment to Climate Action of the German financial sector and Deutsche Bank’s commitment to publish the carbon footprint of its € 445 billion loan portfolio by the end of 2022. The bank continued to refine its Climate Risk methodology and data strategy in alignment with other financial institutions and collaborative cross-industry bodies. In May 2021, Deutsche Bank became the first bank to join the Ocean Risk and Resilience Action Alliance (ORRAA) as a full member and announced its support for the Monetary Authority of Singapore in establishing an ESG Center of Excellence which will focus on public and private ESG transactions, product development and advisory services. Asset Management was selected to advise and help drive the global Net Zero Asset Managers Initiative (NZAMI) and will form part of NZAMI’s newly formed advisory group.
Read the full media release in the downloadable PDF.
About Deutsche Bank
Deutsche Bank provides retail and private banking, corporate and transaction banking, lending, asset and wealth management products and services as well as focused investment banking to private individuals, small and medium-sized companies, corporations, governments and institutional investors. Deutsche Bank is the leading bank in Germany with strong European roots and a global network.
Forward-looking statements contain risks
This release contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about our beliefs and expectations and the assumptions underlying them. These statements are based on plans, estimates and projections as they are currently available to the management of Deutsche Bank. Forward-looking statements therefore speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which we derive a substantial portion of our net revenues and in which we hold a substantial portion of our assets, the development of asset prices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of our strategic initiatives, the reliability of our risk management policies, procedures and methods, and other risks referenced in our filings with the U.S. Securities and Exchange Commission. Such factors are described in detail in our SEC Form 20-F of March 12, 2021 under the heading “Risk Factors” and in the “Risks and Opportunities” section of our Annual Report. Copies of these documents are readily available upon request or can be downloaded from www.db.com/ir.
Basis of Accounting
Results are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union (“EU”), including, from 2020, application of portfolio fair value hedge accounting for non-maturing deposits and fixed rate mortgages with pre-payment options (the “EU carve-out”). Fair value hedge accounting under the EU carve-out is employed to minimise the accounting exposure to both positive and negative moves in interest rates in each tenor bucket, thereby reducing the volatility of reported revenue from Treasury activities.
For the three-month period ended June 30, 2021, application of the EU carve-out had a negative impact of € 5 million on profit before taxes and of € 9 million on profit. For the same time period in 2020 the application of the EU carve-out had a positive impact of € 55 million on profit before taxes and of € 23 million on profit. For the six-month period ended June 30, 2021, application of the EU carve-out had a negative impact of € 321 million on profit before taxes and of € 216 million on profit. For the same time period in 2020 the application of the EU carve-out had a positive impact of € 77 million on profit before taxes and of € 47 million on profit.
The Group’s regulatory capital and ratios thereof are also reported on the basis of the EU carve-out version of IAS 39. The impact on profit also impacts the calculation of the CET1 capital ratio and had a negative impact of less than one basis point as of June 30, 2021 and the three-month period ended June 30, 2020. For the six-month period ended June 30, 2021, application of the EU carve-out had a negative impact on the CET1 capital ratio of 6 basis points and a positive impact of about one basis point for the six-month period ended June 30, 2020. In any given period, the net effect of the EU carve-out can be positive or negative, depending on the fair market value changes in the positions being hedged and the hedging instruments.
Use of Non-GAAP Financial Measures
This report and other documents we have published or may publish contain non-GAAP financial measures. Non-GAAP financial measures are measures of our historical or future performance, financial position or cash flows that contain adjustments that exclude or include amounts that are included or excluded, as the case may be, from the most directly comparable measure calculated and presented in accordance with IFRS in our financial statements. Examples of our non-GAAP financial measures, and the most directly comparable IFRS financial measures, are as follows:
Non-GAAP Financial Measure
Most Directly Comparable IFRS Financial Measure
|Adjusted Profit (loss) before tax, Profit (loss) attributable to Deutsche Bank shareholders, Profit (loss) attributable to Deutsche Bank shareholders after AT1 coupon||Profit (loss) before tax|
|Revenues excluding specific items, Revenues on a currency-adjusted basis||Net revenues|
|Adjusted costs, Adjusted costs excluding transformation charges, Adjusted costs excluding transformation charges and expenses eligible for reimbursement related to Prime Finance||Noninterest expenses|
|Net assets (adjusted)||Total assets|
|Tangible shareholders’ equity, Average tangible shareholders’ equity, Tangible book value, Average tangible book value||Total shareholders’ equity (book value)|
|Post-tax return on average shareholders’ equity (based on profit (loss) attributable to Deutsche Bank shareholders after AT1 coupon)||Post-tax return on average shareholders’ equity|
|Post-tax return on average tangible shareholders’ equity||Post-tax return on average shareholders’ equity|
|Tangible book value per basic share outstanding, Book value per basic share outstanding||Book value per share outstanding|
Adjusted profit (loss) before tax is calculated by adjusting the profit (loss) before tax under IFRS for specific revenue items, transformation charges, impairments of goodwill and other intangibles, as well as restructuring and severance expenses.
Specific revenue items generally fall outside the usual nature or scope of the business and are likely to distort an accurate assessment of the divisional operating performance.
Adjusted costs are calculated by deducting (i) impairment of goodwill and other intangible assets, (ii) litigation charges, net and (iii) restructuring and severance from noninterest expenses under IFRS.
Transformation charges are costs included in adjusted costs that are directly related to Deutsche Bank’s transformation as a result of the new strategy announced on July 7, 2019 and certain costs related to incremental or accelerated decisions driven by the changes in our expected operations due to the COVID-19 pandemic. Such charges include the transformation-related impairment of software and real estate, the accelerated software amortization and other transformation charges like onerous contract provisions or legal and consulting fees related to the strategy execution.
Transformation-related effects are financial impacts resulting from the strategy announced on July 7, 2019. These include transformation charges, goodwill impairments in the second quarter 2019, as well as restructuring and severance expenses from the third quarter 2019 onwards. In addition to the aforementioned pre-tax items, transformation-related effects on a post-tax basis include pro-forma tax effects on the aforementioned items and deferred tax asset valuation adjustments in connection with the transformation of the Group.
Expenses eligible for reimbursement related to Prime Finance: BNP Paribas and Deutsche Bank have signed a master transaction agreement to provide continuity of service to Deutsche Bank’s Prime Finance and Electronic Equities clients. Under the agreement Deutsche Bank will continue to operate the platform until clients can be migrated to BNP Paribas, and expenses of the transferred business are eligible for reimbursement by BNP Paribas.
For descriptions of non-GAAP financial measures and the adjustments made to the most directly comparable IFRS financial measures to obtain them, please refer to pages 3-13 and 17-25 of the financial data supplement which is available at: www.db.com/quarterly-results