Unable to escape Investment Banking
Deutsche Bank's objective is to reduce its dependence on the volatile Investment Banking sector, and strengthen its more stable business segments. That means mainly the Corporate Bank, and Wealth Management. However, after the first quarter, the bank will be relieved to still have a large investment banking division. While corporate banking has lost some momentum in the past two years, after the interest rate hikes and the associated record profits at the beginning of the year, the Investment Banking unit has now picked up the pace.
Investment banking revenues increased by 13% to around 3 billion euros in the first three months. In contrast, corporate banking, without the interest rate stimulus, experienced a 5% decline to around 1.9 billion euros. The pre-tax profit of the Investment Bank jumped by 44% to around 1.3 billion euros, while profits at the Corporate Bank decreased by nearly a quarter to 604 million euros.
Corporate banking challenges
The Investment Banking division performance has sparked high expectations on the stock market. Deutsche Bank's share price rose by around 7% on the day earnings were announced, closing at 16.66 euros, a three-year high. But in the coming quarters, the Investment Banking division must deliver to keep shareholders excited. The first quarter has made it clear that the Corporate Bank will struggle this year to replicate its record results from previous years.
The next turn in interest rates is already on the horizon. Banks generally benefited by delaying passing on the higher interest rates to their depositors. A period of stable and eventually declining interest rates will benefit investment banking M&A activity, and debt and equity market placements.
Advisory business is picking up again
Deutsche Bank's advisory business around M&A, IPOs, and bond issuance already rebounded in the first quarter. Revenues in the Origination & Advisory sector increased by 54% to 503 million euros. In addition to several IPOs, the market for corporate bond issuance was also active in the first quarter.
Furthermore, Deutsche Bank's traditionally strong Fixed Income & Currencies (FIC) trading business saw revenues increase by 7% to 2.5 billion euros, making it the largest revenue generator within the Investment Bank.
The fact that Deutsche Bank has achieved its best quarterly result in ten years is mainly due to its Investment Bank, alongside modest increases in Asset Management. This year, the performance of the unit will be particularly crucial.
