Deutsche Bank 'comfortable' despite DWS issues; Sewing revamp paying off

Deutsche Bank AG's business has so far remained unscathed from allegations of greenwashing in its stand-alone asset management unit, and executives hailed the German bank's strategy as the key driver of its third-quarter and nine-month performance.

The bank's DWS Group GmbH & Co. KGaA unit is under regulatory scrutiny after its former sustainability officer alleged in August that it overstated the volume of its sustainability-linked assets, leading to probes by authorities in its home market and the U.S. DWS stood by its disclosures, calling the allegations "unfounded."

During an analyst presentation, Deutsche Bank CEO Christian Sewing said the group backs the statement, adding that the numbers indicate that there is no negative impact on its business. At €125 billion after the first nine months, Sewing said Deutsche Bank has already beaten its €100 million full-year target of total volume of financing and investments in environmental, social and governance activities.

"[We] have made sure for Deutsche Bank that we have a clear governance and reporting structure about our ESG reporting and how we are doing the validation of transactions. So we feel comfortable with that," said Sewing.

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Result of refocusing

On the bank's financial performance, the CEO said the refocusing of core businesses is already bearing fruit even with a little over a year left in its implementation. "Revenues have grown, as broad-based business performance offsets the effect of normalizing capital markets," Sewing said.

Deutsche Bank's third-quarter pretax profit rose 15% year over year to €554 million. This took into account €583 million of transformation charges, but absent that, it would have risen 39% to €1.2 billion, Sewing said.

Collectively, the core banking businesses yielded net revenue of €6.08 billion, up about 2% year over year.

Sewing said the bank is "very satisfied with the revenue picture" and the last 12 months "clearly indicate an underlying sustainability of the revenues" of all business segments, particularly the investment bank.

Despite the expected normalization in capital markets, investment banking net revenue hit €2.23 billion, down from €2.36 billion in the third quarter of 2020. Mark Fedorcik, investment banking boss, has said the quarter went off on a "pretty muted" start in July, which could go some way to explaining the dip.

Asset management net revenue grew year over year, with CFO James von Moltke attributing the increase to strong management fees from the improvements in equity markets and net inflows. Corporate bank revenue was virtually flat, while those of the private bank slipped to €2.0 billion from €2.04 billion.

Cost savings and outlook

The bank aims to reach a cost-to-income ratio of 70% in 2022 under its transformation plan. By 2021-end, von Moltke said the bank will have booked the bulk of transformation-related costs. Sewing added that 90% of the €8 billion expected overall transformation-related effects have been recognized.

In the first nine months, adjusted costs excluding transformation charges, hit €14.4 billion, down about 4% year on year "despite 2021 being an investment year," Sewing said.

Von Moltke has said the bank will book €700 million of transformation-related effects spread between the third and fourth quarters. In 2022, the bank is still due to book about €300 million of restructuring charges but is "doing everything to minimize the [2022] burden" and book what can be booked in 2021.

Despite nine-month revenue being up 5% year over year, Deutsche Bank still expects its full-year 2021 figure to be flat, an outlook von Moltke said was prudent. "There's obviously still uncertainties ahead of us as we look to the end of the year."

The bank's fourth-quarter performance is expected to set up the bank to achieve its 2022 result, the CFO added. Next year, Deutsche expects at least €25 billion in group revenue.