Deutsche Bank delivered revenues of €25.4 billion in the full year of 2021, an increase of 6% year-on-year. But more importantly, despite expecting a loss, the bank beat all expectations to report net profit of €2.5 billion, a more than 400% increase on 2020, marking its highest full year profit since 2011 and its sixth consecutive profitable quarter. This consistent improvement has driven three rating upgrades for the bank in 2021, the latest by S&P in November. But where does it go from here?
“In 2021 we accelerated our transformation and positioned the bank for the most important measurement year of our compete to win strategy,” said CEO Christian Sewing, who took over in 2018 to hitch the bank out of hot water after a series of heavy regulatory penalties. He told reporters that the bank had undergone a “turbulent time” during 2016-18, but had now entered an “upward spiral.”
Key in this trajectory has been the bank’s transition of its prime finance division to BNP Paribas, which it completed earlier this month. BNP Paribas first agreed to take on Deutsche Bank’s clients in July 2019 after the German institution confirmed it would exit equities sales and trading and prime finance in the first step of Sewing’s major restructuring program. Almost $200 billion of assets are believed to have moved to BNP Paribas as part of the deal.
But the corporate bank was the real star of the show in the fourth quarter – despite flat full year-on-year revenues of €5.2 billion, growth in its institutional client services division offset the interest rate headwinds over 2021, and the fourth quarter saw corporate bank revenues jump 10% to their highest since 2019 at €1.4 billion. For the full year, profit before tax for the corporate bank was up 86% on 2020 to reach €1 billion.
“We are pleased with the progress and the performance of the corporate bank in the fourth quarter, which sets us up well to deliver on our targets for 2022,” said chief financial officer, James Von Moltke.
The investment bank, which used to be a drag on the bank, has reversed its fortunes and in 2021 saw a pre-tax profit of €3.7 billion. The fixed income and currency trading division had a bad time, with a 14% decline in the final quarter of the year. However, revenues in the origination and advisory sectors, along with debt origination and leveraged debt, jumped significantly higher than previous years – again, marking Sewing’s determined strategy to switch lanes.
Part of this program has been a significant reduction in headcount – Deutsche Bank saved €60 million in salaries over the year through decreasing its personnel, while it also scaled back its physical footprint, closing over 180 branches. However, it’s clearly still prepared to pay top dollar to retain talent – compensation at the investment bank jumped 30% in the final quarter.
The bank is coming to the end of its restructuring program, which it embarked upon in 2019, with 97% of its estimated transformation budget already spent, and it has high hopes for the future – especially given the improving economic environment.
“We expect the interest rate impact, along with the annualization of deposit pricing actions, to swing to the positive in 2022 and to support revenue growth from this point,” said Von Moltke.