Deutsche Bank is starting the second Corona year with surprisingly strong figures. There are several reasons for this.
Dhe good run of Deutsche Bank continues: Not only did it achieve its first annual profit after many years of high losses in the Corona year 2020. In the first three months of this year, under the leadership of its CEO Christian Sewing, the bank performed much better than most observers had expected.
Again, this is largely due to the investment bankers, who continue to be sustained by the special Corona boom on the bond markets. The most important finding of the quarterly figures, however, is that the other business areas are also developing positively. Especially in business with corporate and private customers, the bank is increasingly able to get rid of the burden of negative interest rates.
This is a nuisance for customers: more and more of them have to pay the penalty interest on their deposits, which the bank in turn has to cede to the European Central Bank. However, the bank is now benefiting in several ways from the increasingly long negative interest rate phase.
The bank is now profiting from negative interest rates
First, the more institutions charge negative interest on their customers’ savings, the easier it is for the bank to do the same – after all, customers can no longer easily switch to another institution. Second: Because many customers do not want to pay negative interest, they are shifting more and more money into equity investments, which has given the bank the best start to the year in a long time in the securities business with private customers and thus high commission income. And third, the longer the phase of low and negative interest rates lasts, the smaller the impact on the bank’s results.
For years, it had to replace old, high-yielding investment products with new, low-yielding ones, which put a strain on corporate and private customers in particular. In the corporate customer business, this effect should no longer be felt in the next year, as CFO James von Moltke calculated on Wednesday. In the private customer segment, which, according to the bank, is starting the year with a high three-digit million deficit due to negative interest rates alone, the burden this year should only be half as high.
With a view to the corona pandemic, the bank is optimistic – at least when it comes to the risk of loan defaults. Risk provisioning is expected to drop to 1.1 to 1.2 billion euros from 1.8 billion euros in the previous year, said Moltke’s CFO in a conference call on Wednesday. After the bank had significantly increased its risk provisioning in the first half of 2020, it now apparently estimates the risk of massive loan defaults due to corporate insolvencies to be significantly lower.
Less than two years after the bank boss Christian Sewing prescribed his new strategy for the group, he can already celebrate gratifying successes. How sustainable the profits are and how much the bank owes the special Corona situation remains to be seen. But the fact that the finance house can also increase its profits beyond the well-performing bond markets is a good sign for the bank and its shareholders.