Deutsche Bank (XETRA: DBGn.DB / NYSE: DB) today announced profit before tax of € 1.7 billion for the third quarter of 2023, up 7% compared to the third quarter of 2022 and the highest for any third quarter since 2006.
Third quarter post-tax profit was € 1.2 billion, down 3% compared to the prior year quarter. The year-on-year development reflected an effective tax rate of 30% in the quarter, compared to 23% in the prior year quarter which benefited from the geographical mix of income.
Post-tax RoTE¹ was 7.3%, compared to 8.2% in the third quarter of 2022. Post-tax return on average shareholders’ equity (RoE) was 6.5%, down from 7.4% in the prior year quarter. The year-on-year development in both ratios primarily reflected the higher tax rate, increased total equity due to organic capital generation, and higher Additional Tier 1 (AT1) coupons compared to the prior year quarter. These effects more than offset the positive impact of growth in profit before tax. The cost/income ratio was 72%, unchanged from the prior year quarter.
For the first nine months, profit before tax was € 5.0 billion, up 3% year on year, after absorbing nonoperating costs of € 943 million, up from € 170 million in the first nine months of 2022. Excluding nonoperating costs, profit before tax would have been € 5.9 billion in the first nine months of 2023, up 19% from € 5.0 billion in the prior year period. Post-tax profit in the first nine months was € 3.5 billion, down 6% year on year; the year-on-year development reflected higher nonoperating costs and an effective tax rate of 30%, compared to 24% in the prior year period.
Post-tax RoTE¹ for the first nine months was 7.0%, compared to 8.1% in the prior year period, and post-tax RoE was 6.3%, down from 7.2% in the prior year period. The year-on-year development in both ratios reflected the aforementioned rises in the tax rate, total equity, and AT1 coupons compared to the prior year period. The cost/income ratio was 73%, unchanged year on year.
James von Moltke, Chief Financial Officer, said: “Our progress on capital efficiency, and on scoping future regulatory requirements, give us much greater clarity on our potential to free up additional capital. With better visibility on revenue growth, strong risk management and continued cost control, we’re increasingly confident that we can accelerate our growth and shareholder return strategies despite the uncertainties in the environment.”
Assuming an equal apportionment of bank levies and excluding nonoperating costs, post-tax RoTE¹ would have been 8.8%, up from 8.7% in the first nine months of 2022. Post-tax RoE would have been 7.9%, up from 7.8% in the prior year period. The cost/income ratio would have been 68%, down from 71% in the prior year period.
Progress on accelerated execution of the Global Hausbank strategy
Deutsche Bank made progress in accelerating execution of its Global Hausbank strategy on all dimensions during the quarter. In summary:
- Revenue growth: Deutsche Bank delivered year-on-year revenue growth of 6% in the first nine months of 2023, and a compound annual growth rate over 2021 of 6.9% in the twelve months to September 30, 2023, above the bank’s target of 3.5% – 4.5%, and the bank expects full-year 2023 revenues of around € 29 billon. The bank made further strategic investments in capital-efficient and fee income-generating businesses and completed the acquisition of Numis, the UK corporate broker, in early October 2023. The Private Bank and Asset Management together attracted € 39 billion in net inflows in the first nine months of 2023, which drove growth in assets under management of € 66 billion across the two businesses in this period.
- Operational efficiency: Deutsche Bank aims for incremental operational efficiencies of € 2.5 billion annually, predominantly by 2025. Key initiatives are largely running in line with or ahead of plan, headcount reduction measures in senior non-client-facing staff have been completed and further workforce efficiency measures are in place. Further measures underway include streamlining front-to-back processes and optimization of the distribution network; the number of branches has been reduced by 93 in the first nine months of 2023.
- Capital efficiency: Around € 10 billion of Deutsche Bank’s 2025 RWA optimization target of € 15-20 billion was already achieved by the end of the third quarter, without material impact on revenues. Progress included data and process enhancements and an additional securitisation transaction during the quarter; additional portfolio measures are in progress, including optimized hedging and reductions in sub-hurdle lending. Given progress to date and further reduction potential, the bank has identified scope to increase its RWA reduction target by € 10 billion, to € 25-30 billion. Additionally, the bank’s latest analysis indicates that the impact on RWA from the implementation of Basel III requirements will be € 10-15 billion lower than originally estimated. Taken together, these factors create potential to free up additional capital of around € 3 billion through 2025.
