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In the Corona crisis of all places, the house of money surprises with good numbers. However, it remains to be seen whether the decline will end for years.
Deutsche Bank has always been different from others, not only because it is the largest money house in the country. If it overcame the financial crisis in 2008 without direct state aid, it slipped further and further into misery in the following years, while other institutes recovered long ago. Even in the Corona crisis, the bank is now attacking again, this time, however, positively: surprisingly, it sent out an ad hoc announcement on Sunday shortly before midnight, because business in the first three months of the year was apparently better. than analysts. I had waited. Yields were significantly higher, and the end result is a profit.
Companies are required to make such notifications if their trade numbers deviate significantly from analyst expectations. The latter were not particularly optimistic, as US banks had to report large losses in the first quarter due to the crown. Furthermore, many experts fear that the pandemic will sooner or later spread to the financial sector. As a result, Deutsche Bank’s share price rose more than ten percent on Monday, sometimes to more than six euros.
The institute does not want to provide details on the business until Wednesday, the originally scheduled date for the quarterly figures. But the key points sound encouraging: Deutsche Bank made a profit of € 66m in the first three months. At € 6.4 billion, earnings were even slightly higher than a year ago. However, there was no information on how the revenue was formed, but it should come primarily from bond trading, which remains the bank’s most important business area. If prices fluctuate strongly, that is, clients trade a lot, this also drives the profits of investment banks. At the same time, German banks in particular are indirectly benefiting from extensive aid programs from the Federal Government and the European Central Bank. Many companies are not in trouble right now, unlike in the United States, where unemployment has skyrocketed. Therefore, US banks. USA They had to establish high provisions for credit card failures.
Furthermore, national banks will certainly benefit from increased demand for loans due to the crisis. In recent years, weak demand for credit in Germany has been the problem for them, and the German middle class is traditionally considered to have strong capital. With Corona, hell is suddenly happening. At the same time, Wall Street’s rivals are apparently gradually withdrawing from the European loan business, at least so Financial times For example, US banks have shown remarkably little commitment to the latest lines of credit for Adidas or BASF. This can help Deutsche Bank to regain its market share.
The basic capital ratio threatens to decrease further
CEO Christian Sewing does not want to miss this opportunity. “We are determined to use our balance sheet to support clients who now need us especially,” he said Monday. However, this could mean that the Tier 1 core capital ratio “temporarily does not meet the target of at least 12.5 percent.” If the bank makes more loans, this reduces its own reserves, and the basic capital ratio fell from 13.6 percent in late December to 12.8 percent in March.
In any event, it is too early to give the go-ahead to Deutsche Bank, which is undergoing an ongoing restructuring process. The consequences of the crisis are far from predictable: at the end of March, Frankfurt’s risk provision for bad loans tripled to 500 million euros. However, this corresponds to only 0.44 percent of the bank’s total loan volume. In 2019, CEO Sewing had significantly expanded loans. Therefore, defaults should continue to increase, not just for loans for German medium-sized companies. The US Commercial Real Estate Market The US, where Deutsche Bank claims to be one of the leading institutions, is at risk of adversity, as is the trade in so-called “leveraged loans” where the bank is also involved. Highly indebted companies or financial investors use these loans to finance their acquisitions. But if the economy collapses and debtors are suddenly unable to pay, it will be dangerous for financial banks.
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