Profit before tax rises 15% year on year despite significant rise in transformation charges¹
- Adjusted profit before tax¹ rises 39% to € 1.2 billion
- Transformation charges¹ of € 583 million versus € 104 million in prior year quarter
- Core Bank profit before tax of € 898 million, in line with prior year quarter
- Capital Release Unit improves result: loss before taxes down 19% to € 344 million
- Group net income rises 6% to € 329 million
Net revenues rise 2% to € 6.0 billion as business growth offsets normalising markets
- Loan growth of € 11 billion in the quarter
- Private Bank: business growth of € 9 billion lifts year to date total to € 38 billion
- Asset Management: net inflows of € 12 billion drive assets under management to a record € 880 billion
Adjusted costs reduced while transformation charges impact noninterest expenses
- Noninterest expenses rise 4% year on year to € 5.4 billion
- Adjusted costs ex-transformation charges¹ down 3% year on year to € 4.7 billion
- 90% of total expected transformation-related effects¹ now recognised
Capital, risk and balance sheet discipline maintained
- Common Equity Tier 1 (CET1) capital ratio of 13.0%, in line with guidance
- Provision for credit losses down 57% year on year to € 117 million
- Capital Release Unit further reduces RWAs to € 30 billion, ahead of end-2022 target
Full-year 2021 sustainability targets exceeded after nine months
- Third quarter ESG financing and investment volumes of € 27 billion
- Cumulative volumes since beginning of 2020 rise to € 125 billion, above year-end 2021 target of € 100 billion
First nine months of 2021: significant year on year profit growth
- Net income of € 2.2 billion, up more than fivefold
- Group profit before tax rises nearly fourfold to € 3.3 billion, reflecting:
- 5% growth in net revenues to € 19.5 billion
- 4% reduction in adjusted costs ex-transformation charges1 to € 14.6 billion
- 83% reduction in provision for credit losses to € 261 million
- Core Bank profit before tax up 64% to € 4.3 billion
- Post-tax RoTE¹ rises from 4.3% to 7.5% with cost/income ratio of 76%
- Post-tax RoTE¹ rises from 4.3% to 7.5% with cost/income ratio of 76%
In the third quarter, we again demonstrated the operating strength of our business: our revenues have proven to be resilient, we have increased our pre-tax profit despite additional transformation charges, and we have already exceeded our full year 2021 sustainability target. We are focused on driving efficiencies while maintaining strong controls, and we are confident of achieving Deutsche Bank’s 2022 targets.
Deutsche Bank (XETRA: DBKGn.DB / NYSE: DB) today reported a 15% year on year rise in pre-tax profit to € 554 million in the third quarter of 2021 after recognising a further € 583 million in transformation charges. Adjusted profit before tax(1), which excludes transformation-related effects and specific revenue items, rose 39% year on year to € 1.2 billion and net income in the quarter rose 6% year on year to € 329 million.
Transformation charges recognised in the quarter consisted predominantly of technology-related items, including approximately € 450 million relating to a contract settlement and software impairments, principally triggered by the bank’s migration to the cloud.
90% of the total transformation-related effects anticipated through year-end 2022 are now fully recognised. Deutsche Bank reaffirmed its intention to recognise most of the remaining transformation-related effects by year-end 2021.
Third quarter profit before tax and adjusted profit before tax1 include an impact of € 98 million, predominantly in foregone revenues, from the ruling in April 2021 by the German Federal Court of Justice (‘BGH ruling’) requiring active customer consent for pricing changes on current accounts. This impact is expected to be considerably lower from the fourth quarter of 2021 onwards, as approximately two-thirds of the accounts affected now have the necessary consent agreements in place. These will become effective in the fourth quarter.
For the first nine months of 2021, profit before tax was € 3.3 billion, despite € 798 million in transformation charges and € 324 million relating to the BGH ruling. The year-to-date impact of the BGH ruling comprised € 192 million in foregone revenues and € 131 million in litigation provisions. In the first nine months of 2020, profit before tax was € 846 million after € 283 million in transformation charges. Adjusted profit before tax(1), which excludes transformation-related effects and specific revenue items but includes the impact of the BGH ruling, was €4.3 billion, up from € 1.5 billion in the prior year period.
Net income was € 2.2 billion in the first nine months, up more than five-fold from € 435 million in the prior year period. Post-tax return on average shareholders’ equity was 4.3%, up from 0.1% in the same period of 2020, while post-tax return on average tangible equity (RoTE)¹ was 4.8%, up from 0.2% in the prior year period. Adjusted post-tax RoTE¹ was 6.6%
The four core businesses contributed to growth in nine-month post-tax RoTE as follows:
- Corporate Bank: 7.0%, up from 3.2% year on year;
- Investment Bank: 13.5%, up from 10.6%;
- Private Bank: 2.7%, up from negative 1.8%;
- Asset Management: 28.3%, up from 20.3%.
Group cost/income ratio was 82%, down from 87% in the first nine months of 2020.
Core Bank: profit up 64% in the first nine months of 2021
In the Core Bank, which excludes the Capital Release Unit, profit before tax was € 898 million in the third quarter, in line with € 909 million in the third quarter of 2020, despite € 570 million in transformation charges, up from € 66 million in the prior year quarter. Adjusted profit before tax1 was up 23% year on year to € 1.5 billion. Post-tax RoTE¹ was 3.9% in the quarter, while adjusted post-tax RoTE¹ was 7.3%.
For the first nine months, Core Bank profit before tax rose 64% year on year to € 4.3 billion and adjusted profit before tax1 was € 5.2 billion, also up 64%. Post-tax RoTE was 7.5%, up from 4.3% in the prior year period, compared to the Core Bank’s 2022 reported post-tax RoTE target of above 9%. Adjusted post-tax RoTE was 9.4%.
Capital Release Unit: continued bottom line improvement and portfolio reduction
The Capital Release Unit reported a loss before tax of € 344 million in the quarter, a loss reduction of 19% versus the third quarter of 2020. This improvement was driven primarily by a 19% reduction in noninterest expenses to € 312 million.
The Capital Release Unit maintained progress on portfolio reduction during the third quarter. Leverage exposure was reduced from € 71 billion to € 61 billion, primarily driven by continued portfolio reduction actions and transfers of Prime Finance client relationships. Deutsche Bank aims to meet or exceed its year-end 2022 leverage exposure reduction target of € 51 billion by year-end 2021. RWAs were further reduced to € 30 billion, already ahead of the year-end 2022 target of € 32 billion.
In the first nine months, the Capital Release Unit reported a loss before tax of € 1.0 billion, a loss reduction of 43% versus the € 1.8 billion loss in the first nine months of 2020. This improvement was driven largely by a 32% reduction in noninterest expenses to € 1.1 billion, and a 37% year on year reduction in adjusted costs ex-transformation charges to € 901 million, down from € 1.4 billion the first nine months of 2020.
Since the third quarter of 2020, the Unit has reduced leverage exposure by 32% from € 90 billion to € 61 billion, and RWAs by 23% from € 39 billion to € 30 billion.
Revenues: resilience in core businesses
Group net revenues were € 6.0 billion in the third quarter, up 2% year on year despite continued normalising markets, low interest rates and € 96 million in foregone revenues from the BGH ruling. Core Bank net revenues were € 6.1 billion, up 2%.
For the first nine months, Group net revenues were € 19.5 billion, up 5%, and Core Bank net revenues were also € 19.5 billion, up 4%.
Third quarter revenue development in Deutsche Bank’s core businesses was as follows:
- Corporate Bank net revenues were € 1.3 billion, stable year on year. Business growth and deposit re-pricing offset interest rate headwinds and a year on year decline of € 59 million in items episodic in nature which comprise portfolio rebalancing actions, recoveries related to credit protection and other one-time effects. Excluding episodic items, revenues were up slightly, and no specific items affected revenues in the period. By quarter end, accounts with deposits of € 94 billion were covered by charging agreements, up from € 88 billion in the second quarter, and contributing € 96 million in quarterly net revenues. Loan growth was € 3 billion in the quarter. Nine-month net revenues were € 3.8 billion, down 3% year on year and essentially flat excluding items episodic in nature and currency translation effects.
- Investment Bank net revenues were € 2.2 billion, down 6% year on year. Revenues in Fixed Income & Currencies (FIC) were down 12% at € 1.6 billion. Significantly higher revenues in Financing were offset by declines in Credit, Rates and Foreign Exchange revenues as solid levels of client activity were more than offset by normalising market conditions and lower volatility. Emerging Market revenues were higher, driven by performance across regions. Origination & Advisory revenues were up 22% year on year at € 648 million, reflecting growth across Debt Origination, Equity Origination and Advisory. Nine-month net revenues were € 7.7 billion, up 4% year on year. For the first nine months, Deutsche Bank ranked No. 1 in Origination & Advisory in Germany with a share of 8.7% (source: Dealogic). Deutsche Bank was named Best Investment Bank in Western Europe by The Banker magazine in its 2021 Investment Banking Awards.
- Private Bank net revenues were € 2.0 billion, down 2% year on year. Revenues were stable excluding specific items and € 94 million in foregone revenues arising from the BGH ruling. Revenues in the Private Bank Germany were down 6%, and up 1% if adjusted for the impact of the BGH ruling, while revenues in the International Private Bank were up 6%, and up 1% excluding specific items. New business volumes were € 9 billion, including € 5 billion in net inflows of investment products and € 3 billion in net new client loans. Nine-month net revenues were € 6.2 billion, up 1% year on year, despite a € 188 million impact from the BGH ruling. Year to date new business volumes were € 38 billion, above the Private Bank’s full-year 2021 target of € 30 billion, including net inflows of investment products of € 22 billion and net new client loans of € 11 billion.
- Asset Management net revenues were € 656 million, up 17% year on year and the highest for seven quarters, driven primarily by a rise in management fees to the highest level for over six years. This was driven by six consecutive quarters of net inflows and market performance in a supportive market environment. Net inflows were € 12 billion, reflecting contributions across all asset pillars, and included € 5 billion in environmental, social and governance (ESG) assets, the highest quarterly ESG inflows of 2021 to date. Net inflows, together with a positive impact from currency movements, drove assets under management up by € 21 billion to a record € 880 billion. Since the third quarter of 2020, assets under management have grown by € 121 billion including net inflows of € 46 billion. For the first nine months, net revenues were up 18% to € 1.9 billion while net inflows were € 33 billion, including ESG net inflows of € 13 billion.
Further progress toward completing recognition of transformation charges
Noninterest expenses rose 4% to € 5.4 billion in the quarter, including € 583 million in transformation charges. These were driven primarily by a contract settlement and software impairments, principally triggered by Deutsche Bank’s migration to the cloud. Both of these are expected to reduce run-rate costs in future quarters. Adjusted costs ex-transformation charges were down 3% to € 4.7 billion in the quarter.
Deutsche Bank’s workforce was 84,512 full-time equivalents (FTEs) at the end of the quarter, up by 715 versus the second quarter. Selective hiring to support business growth and internalisation of contract staff were largely offset by workforce reduction measures and other departures, while the quarter-on-quarter FTE increase predominantly reflected the annual arrival of new graduate hires during the quarter. Since the end of the prior year period, the workforce has been reduced by just under 2,500 full-time equivalents despite selective hiring, internalisations and graduate hires.
For the first nine months, noninterest expenses were € 15.9 billion, down 2% despite a near-threefold year on year increase in transformation charges to € 798 million. Adjusted costs ex-transformation charges were € 14.6 billion, down 4% year on year.
Credit provisions remain significantly below prior year
Provision for credit losses was € 117 million in the quarter, down 57% year on year, reflecting a supportive credit environment, high quality loan book and strict risk discipline. Provision for non-performing loans (stage 3) was € 199 million, down 51% year on year. This was partly offset by net releases of € 82 million of provision for performing loans (stage 1 and 2) driven by a more stable macro-economic outlook.
For the first nine months, provision for credit losses was down 83% year on year to € 261 million, or 8 basis points of average loans on an annualised basis, down from 47 basis points in the first nine months of 2020.
Conservative capital and balance sheet management
The Common Equity Tier 1 (CET1) capital ratio was 13.0% at the end of the quarter, in line with previous guidance, down from 13.2% at the end of the second quarter. This development mainly reflects higher RWAs due to methodology changes driven by regulation, as expected, together with RWA increases related to client-related activity. The latter were largely offset by a reduction in Operational Risk RWAs arising from improvements in the bank’s risk profile. As at the end of the third quarter, CET1 capital reflected deductions for common share dividends of € 641 million.
The Leverage Ratio (fully loaded) remained stable at 4.8% in the quarter, reflecting continued progress on leverage exposure reduction in the Capital Release Unit offset by currency translation effects. On a phase-in basis, the leverage ratio was 4.9%.
Liquidity reserves were € 249 billion in the quarter, versus € 254 billion at the end of the previous quarter, including High Quality Liquid Assets of € 217 billion. The Liquidity Coverage Ratio was 137%, above the bank’s target of 130%, and preliminary Net Stable Funding Ratio was 123% in the quarter, above the bank’s target range of 115-120% and with a surplus of € 109 billion above required levels.
Sustainable Finance: full year 2021 target exceeded after € 27 billion in third quarter volumes
Cumulative environmental, social and governance (ESG)-related financing and investment volumes reached € 125 billion excluding DWS since the beginning of 2020. This exceeds Deutsche Bank’s target of at least € 100 billion by year-end 2021, on a path to the bank’s target of at least € 200 billion by year-end 2023.
Third-quarter ESG-related financing and investment volumes were € 27 billion excluding DWS, in line with the record levels of the previous quarter. The bank’s businesses contributed as follows:
- Corporate Bank: € 3 billion in sustainable financing, raising the Corporate Bank’s cumulative total to € 18 billion;
- Investment Bank: € 17 billion in sustainable financing and capital market issuance, bringing the Investment Bank’s cumulative total to € 73 billion. In 2021 to date, Deutsche Bank ranked top-five globally in ESG-related debt and sustainability-linked bond issuance as measured by fees, up from 8th in the full year 2020 (Source: Dealogic);
- Private Bank: € 5 billion growth in ESG assets under management and a further € 1 billion in new client lending, raising the business’s cumulative total to € 34 billion.
Progress in the businesses during the quarter included:
- Acting as bookrunner on four of the six largest ESG bond issues of the quarter as measured by face value (source: Dealogic);
- Leading three inaugural sovereign green bonds, notably a £ 10 billion issue for the UK Debt Management Office, a € 5 billion inaugural green bond for the Kingdom of Spain;
- Executing the bank’s first green repurchase agreement, raising £ 20 million;
- Raising $ 200 million through the bank’s first green Formosa Bond, which will help fund renewable energy projects and energy efficiency improvements;
- The Corporate Bank further expanded its offering for the German Mittelstand and built out its capability to structure sustainability-linked loans in this segment.
- The Private Bank Germany introduced Blue Economy funds to build resilience in regions most vulnerable to ocean risk.
Deutsche Bank underwent a “Sustainable Procurement Maturity Review” for the first time by EcoVadis, and was rated “proactive”. The bank also defined a path to 100% renewable electricity usage for its own operations by 2024 via the use of Energy Attribute Certificates.
Read the full media release in the downloadable PDF.
An analyst call to discuss third quarter 2021 financial results will take place at 13:00 CEST today. An Earnings Report, Financial Data Supplement (FDS), presentation and audio webcast for the analyst conference call are available at: www.db.com/quarterly-results
A fixed income investor call will take place on, October 29, 2021, at 14:00 CEST. This conference call will be transmitted via internet: www.db.com/quarterly-results
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 minimize 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 September 30, 2021, application of the EU carve out had a positive impact of € 45 million on profit before taxes and of € 28 million on profit. For the same time period in 2020 the application of the EU carve out had a negative impact of € 12 million on profit before taxes and of € 9 million on profit. For the nine-month period ended September 30, 2021, application of the EU carve out had a negative impact of € 276 million on profit before taxes and of € 187 million on profit. For the same time period in 2020 the application of the EU carve out had a positive impact of € 65 million on profit before taxes and of € 38 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. For the nine-month period ended September 30, 2021, application of the EU carve out had a negative impact on the CET1 capital ratio of about 5 basis points and a positive impact of about 1 basis point for the nine-month period ended September 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