Deutsche Bank's earnings have decreased, yet it has initially gained enthusiasm on the stock market. At first glance, this might seem like a paradox, but it is not entirely illogical. First, the financial data suggests that the country's largest private bank might not have reached the so-called interest rate peak yet. Second, the bank is not only hinting at higher dividends but is also building a strong foundation with improved capitalization. Third, after a substantial decline in recent weeks, the stock has managed to recover, showing an impressive 8% increase. While such a surge might seem impressive, it essentially just made up for the losses of the previous week.

Like all banks whose business models heavily depend on interest income, the historical interest rate hikes in the past have given Deutsche Bank a boost in earnings. When the European Central Bank adjusts the interest rates, banks quickly pass this on in their lending operations. However, banks cannot solely benefit from this positive effect of rising interest rates in the medium term. Increasing interest rates negatively impact loan quality because there is a higher chance that businesses and individual customers might struggle to meet their payment obligations. Additionally, depositors respond to the changed interest rate environment by placing their funds where they get the best interest rate, thus reducing the banks' income.

Currently, investors are particularly concerned about whether one and a half years after the interest rate turn, its negative effects are starting to outweigh the positive ones. Banks themselves find it challenging to predict this, as admitted by James von Moltke. When asked about how interest income will develop by the year-end, the CFO did not commit to a specific answer. With refreshing candour, he acknowledged that the internal models had not accurately predicted the present-day results six months ago.

In fact, Deutsche Bank's interest income proved surprisingly robust. Compared to the previous quarter, net interest income decreased by a moderate 7%, and in comparison to the same quarter last year, it dropped by 9%. Since the beginning of the year, Deutsche Bank has seen a 5% increase compared to the same period last year. Hence, there is reason to hope that Deutsche Bank will continue to benefit from the current interest rate environment for some time or at least adapt well to it.

Of particular note is the fact that the stable interest income benefits from increased deposit volume in retail banking. This is happening despite the likely deterrent effect of the Postbank incident, which also led to an overload in the back office. This back office, under the watchful eye of BaFin, primarily has to process the backlog. According to Moltke, the negative impact was in the single-digit million range in the third quarter and could reach 15 to 30 million euros in the final quarter. More relevant for stock investors than successes in retail deposits are dividends. The announcement that Deutsche Bank has created room to distribute up to 3 billion euros to shareholders likely influenced the initial stock price gains significantly.