Deutsche Bank targets earnings beat but guidance throws up questions

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Statues stand outside a Deutsche Bank AG branch in Frankfurt, Germany.

Krisztian Bocsi | Bloomberg | Getty Images

Deutsche Bank is expecting to announce quarterly earnings “slightly above” consensus on Wednesday, but the guidance raises questions about the investment bank (IB) market share, according to Barclays analysts.

Consensus estimates compiled by the bank pointed to a net loss attributable to shareholders of 133 million euros ($155.7 million) for the second quarter, a considerable improvement on the 3.2 billion euro loss for the same period last year in the midst of a mass restructuring effort. Analysts polled by Reuters expect a net loss of 112.2 million euros.

The German lender said its results had slightly exceeded its own consensus estimates, while core equity tier one (CET1) capital ratio came in at 13.1%, surpassing a published consensus of 12.4% and previous guidance of 12.5-12.6%. Deutsche has suggested that this improvement is largely driven by higher-than-expected repayments of credit facilities, reducing credit risk-weighted assets (RWA).

In a note last week, Barclays equity analysts said that while the capital position was supportive, the earnings guidance came as a “negative surprise” as it could suggest that the IB is losing market share, indicating that CEO Christian Sewing’s landmark restructuring effort may not be going exactly to plan.

Devil in the detail

Barclays analysts suggested in a research note last week that investors should approach these early statements with caution ahead of the release of the detailed report on Wednesday.

“This earning guidance comes as a negative surprise to us, as the latest consensus earnings is materially below our estimates, despite guidance on impairment charges and statements that costs are on track for FY20 targets,” they said.

“We think that if the impairment guidance was materially different to the 800 million euro guidance for (the second quarter of 2020), the group would have had to state this.”

Deutsche’s consensus compiled on July 21 features eight contributors and an average estimate age of 11 days, median of 12 days, which Barclays analysts argued does not truly capture the strength of FICC (fixed income, currencies and commodities) reporting by U.S. peers.

Having updated their estimates in light of reporting from the major Wall Street banks, Barclays estimates for Deutsche Bank’s quarterly FICC revenues came in significantly higher than the bank’s own consensus.

U.S. banks’ cumulative quarterly FICC revenue came in at $23.39 billion while Deutsche’s consensus is just below $2.19 billion, but Barclays placed the expectation for Deutsche in light of U.S. reporting at $2.89 billion.

“Given a consensus PBT (profit before tax) loss of €80m for the quarter, if Q220 IB revenues are in line with peers it would suggest the group result should be well ahead of consensus, all else equal,” Barclays analysts commented.

“Put the other way, if the consensus for FICC revenues is correct it would suggest significant market share loss.”