Deutsche Bank AG (DB) reported first quarter 2011 net income of €2.1 billion ($3.1 billion) or €2.13 per share, compared with €1.8 billion or €2.43 per share in the prior-year quarter.
While Deutsche Bank recorded stellar net earnings in the quarter, an increase in shares outstanding pulled down the earnings per share figure from the prior-year period. The company witnessed a rise in net income on the back of increased revenues, which in turn benefited from recent acquisitions.
Deutsche Bank reported net revenue of €10.5 billion in the first quarter, up 16% from the comparable quarter prior year. The growth was fuelled by recent acquisitions of Postbank, Sal Oppenheim and the commercial banking activities from ABN AMRO in the Netherlands.
Deutsche Bank ‘s Corporate & Investment Bank segment reported net revenues of €6.7 billion, slightly up from €6.6 billion in the prior-year period. Revenues from the Private Clients and Asset Management segment were €4.1 billion compared with €2.2 billion in the prior-year first quarter. This segment’s results benefited from a positive impact related to its stake in China’s Hua Xia Bank as a result of accounting changes implemented for local regulatory approval. However, revenues in Corporate & Adjustments segment were negative €476 million versus negative €91 million in the prior-year quarter.
The provision for credit losses at Deutsche Bank increased 42% to €373 million in the reported quarter with the majority being attributable to Postbank. Excluding Postbank, the company reported a 37% reduction in provision for credit losses, driven by the overall favorable economic environment, accounting reclassifications and a positive impact as a result of a portfolio sale in Private & Business Clients.
However, Deutsche Bank ‘s consolidation ofacquisitions made throughout 2010and acquisition-related costs along with investments made to restructure its investment banking division pushed up its non-interest expenses by 19% to €7.1 billion from the year-ago quarter.
Deutsche Bank made efforts to beef up its capital position. The company had completed the €10.2 billion capital raise in October 2010. Tier 1 capital ratio was 13.4% at the end of the first quarter 2011, up from 12.3% at year-end 2010. The core Tier 1 capital ratio was 9.6%, up by nearly 100 basis points compared to 8.7% at year-end 2010. Risk-weighted assets decreased to €328 billion at the end of the first quarter 2011 from €346 billion at year-end 2010.
Deutsche Bank’s management reaffirmed the 2011 profit target of €10 billion for its business divisions and continues to invest in its franchise.
Competitive Landscape
Earlier this week, UBS AG (UBS) reported its first quarter 2011 results. The company posted a sequential increase in profit though the numbers came in below the prior-year comparable period’s results. The bright spot was the surge in positive inflows that the company experienced in the quarter. On the other hand, Credit Suisse Group AG (CS) reported a significant drop in profit from the prior-year quarter on the back of lower revenues.
Our Take
Deutsche Bank has adopted several strategic initiatives including the repositioning of its core business, bolstering of While such initiatives augur well, costs associated with such efforts cannot be denied. Going forward, though we expect the company to post a growth in earnings, we think any significant improvement will be necessarily restrained by the tardy recovery in the overall economy. capital levels, opportunistic acquisitions and investments in organic growth.
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
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