DB - Deutsche Bank starting to see softer credit quality in some sectors

2023-07-26 07:56:26 ET

Deutsche Bank ( NYSE: DB ) has started to see credit quality soften in some German midcap sectors, such as automotive, though it observes no signs of persistent deterioration, Chief Financial Officer Jacob von Moltke said during the company's Q2 earnings call.

With that, Europe's largest lender expects its provisions for credit losses for the year to land at the upper range of its 25- to 30-basis point guidance range, he said.

Q2 provision for credit losses was €401m, up from €372M in Q1 and from €233M in Q2 2022. For the first half, the provision was 31.8 basis points of average loans, up from 21.8 bps in the first half of 2022.

In addition, noninterest expenses are now expected to be slightly higher than 2022, reflecting higher-than-anticipated litigation expenses it incurred in Q2 and costs related to its Numis transaction, which is expected to close in Q4 2023.

In Q2, nonoperating expenses included €395M of litigation charges and €260M of restructuring and severance costs to accelerate its Global Hausbank strategy.

Still, CEO Christian Sewing underscored that Deutsche Bank ( DB ) is "fully on track to outperform on our revenue growth targets, of 3.5 to 4.5% compound annual growth against 2021 levels."

Furthermore, "we expect the growth in our assets under management, and net asset inflows, to drive fee income in future quarters," he said.

Von Moltke added, "We expect margins to begin to decline from this point but expect that the tailwind from interest rates for 2023 will be larger than the €900M euros we had guided at the start of the year."

Earlier, Deutsche Bank ( DB ) Q2 profit falls 27%, jump in costs, reaffirms guidance

More on Deutsche Bank:

• Deutsche Bank sees Q2 FICC down as much as 20% vs. strong year-ago results
• Deutsche Bank: The Restructuring Strategy Is Delivering
• Deutsche Bank to pay $75M to settle Jeffrey Epstein lawsuit
• Deutsche Bank to acquire Numis, expanding investment bank in U.K.

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