FINANCIALS: Deutsche Bank: Corporate Credit Quality Weak, Spreads At Risk

Deutsche Bank (DB: Baa1/BBB/A-) results have that unpleasant mix of higher costs (on litigation provisions) alongside a disappointment in loan losses. No further buyback would be a spread positive, but those credit quality indicators are, at best, mixed. Spreads had tightened meaningfully on the way into these results, so we continue to see downside risk here.

• Credit stats: loan losses went back up 3bp (to 40bp, 11% weaker than consensus) driven by a near-doubling in the corporate bank. Positively for Commerzbank and the smaller Germans, domestic German retail banking provisions actually dropped by around a third. Non-performers are broadly flat (at 3.1% of loans). CET1 is 10bp better than expected (at 13.5%).
• Revenues were broadly in line with consensus though NII missed (which tends to go badly with the equity market) and the core FIC business in the IB missed, too. Costs overran quite significantly (6%) on the Postbank litigation provision (EUR1.3bn) which, along with that loan loss miss, drove the 16% pre-tax miss.
• Guidance: mgmt does not see a Postbank settlement “in near future” so we have to fear further provisioning and indications are that loan losses will be weaker than consensus for FY24. Negatively for the equity, there is no further buyback here. Mgmt also indicated that CRE provisions were “worse than expected” – likely negative for DePfa and Aareal.

Conf call is 1000 (London time) at: https://services.choruscall.eu/links/deutschebank1.html