Deutsche Bank returns to quarterly profit as lawsuit provisions cut

By Tom Sims and Matthias Inverardi

FRANKFURT (Reuters) -Deutsche Bank bounced back to profit in the third quarter, as it reduced reserves set aside for investor lawsuits over its Postbank division while its global investment bank fired on all cylinders.

A 15-quarter profit streak at Germany’s largest lender was interrupted in the second quarter after it made a large provision for the lawsuits. But Deutsche has since settled some of the suits and cut provisions by 440 million euros ($475 million), helping lift profit.

The bank also said it was applying for a share buyback, a move that was on hold because of its issues with Postbank, though provisions for credit losses were double those a year earlier.

Net profit attributable to shareholders came in at 1.461 billion euros in the quarter, 42% more than a year earlier and in line with expectations. It logged a loss of 143 million euros in the second quarter.

“In these three months, we made important progress in putting legacy litigation matters behind us, while also producing a record third-quarter profit in our operating business,” Deutsche Bank CEO Christian Sewing said.

The investor lawsuits – which have been bouncing around courts for years, weighing on Deutsche’s share price – claim that the bank underpaid in its acquisition of Postbank.

The purchase of the no-frills lender with its millions of clients and roots in the country’s postal system began during the global financial crisis and had been aimed at broadening Deutsche’s reach in Germany while gaining a steady income stream.

Deutsche said in April that although it strongly disputed the claims, it had decided to post a provision for the cases of 1.3 billion euros.

While some of those lawsuits have been settled, others remain and a court hearing in one matter is scheduled for later on Wednesday in Cologne.

Deutsche’s biggest breadwinner in the quarter was its sprawling investment bank, which operates from Sydney to New York. Revenues rose 11% from a year earlier, above expectations for gains of 6.5% and mirroring gains at rivals like JPMorgan and Goldman Sachs.

But revenues at Deutsche’s other two big divisions were lacklustre.

Revenue at the retail division, which includes Postbank, was flat, in line with expectations. The corporate bank saw a 3% decline in revenue, while analysts had expected a gain of less than 1%.

Both divisions had been lifted in recent quarters by the income generated by higher interest rates, gains that will ease as the European Central Bank cuts interest rates.

Within the investment bank, revenue for fixed-income and currency trading, one of the bank’s largest businesses, rose 11%, better than expectations for a 4.6% gain. Such revenue was flat at JPMorgan and fell 12% at Goldman.

Origination and advisory was a pillar of strength in the quarter, with revenue rising 24%, compared with expectations of a 19% increase.

Deutsche Bank is one of several big European banks publishing its quarterly report card this week and next. The sector is expected to show continued profitability, with robust investment banking activity offsetting squeezes on margins and weak demand for loans among consumers and businesses.

In recent weeks, news that Italy’s UniCredit was pushing for a possible tie-up with Deutsche Bank’s smaller domestic rival, Commerzbank (ETR:CBKG), has dominated headlines and invited speculation that Deutsche may jump into the fray with mergers and acquisitions.

But Deutsche officials have repeatedly played down such notions, saying they are focused on their own strategy.

($1 = 0.9257 euros)