On the surface, Deutsche Bank’s results this morning came in better than expected with first quarter earnings more than doubling as Germany’s biggest bank benefited from a pick-up in market activity at the start of the year. In the three months to March, Deutsche managed to make a net profit of €575m, more than double from €236m in the same period a year earlier, when market were shaken by concerns over Deutsche’s viability, and above consensus estimates of €522m.
However, not only did revenues fall 9% to €7.3bn, largely the result of an accounting effect known as debt-valuation adjustment, or DVA, but a more careful read of the report thru explains why DB stock is down 3%, after tumbling as much as 3.9% earlier in the session – the most in 5 weeks – making it the second biggest decliner in 46-member SX7P after Popular.
As Bloomberg points out, Europe’s largest investment bank on Thursday reported an 11% increase in FICC revenue, less than half the 24% jump in the combined fixed income revenue at the five biggest U.S. investment banks. Income from dealing in stocks, which the firm has sought to expand because of its lower capital requirements, declined 10 percent while it was broadly flat at the U.S. lenders, which appear to have taken significant market share from the German banking giant.
At the securities unit, revenue from both rates and credit trading rose last quarter while foreign exchange business saw income fall from a year earlier in a “low volatility environment.†Emerging markets revenues were flat across the Latin America and central and eastern Europe, the Middle East and Africa regions. The bank said that while cash equity and equity derivatives revenue rose in the quarter from a year earlier, income from its prime finance business was “significantly lower.†That reflected higher funding costs as well as lower client balances, which have recovered compared to their level in the fourth quarter.
