Deutsche Bank Still Has Too Many Plot Twists

livemint.com:

Deutsche Bank’s recovery plan may be working. As a story that investors want to watch, however, it isn’t exactly “Barbenheimer." On Wednesday, the German lender said it earned €763 million, equivalent to $844 million, during the second quarter of the year, a 27% decline compared with a year earlier. The results mirror those reported by Wall Street banks: Net interest income for retail and corporate divisions jumped thanks to central banks pushing interest rates up, but a slump in trading revenue and a dearth of deals has hit investment banking.

Deutsche Bank also reported a spike in nonoperating costs, which increased sixfold due to litigation and restructuring expenses. It also raised provisions for credit losses by 72%, reflecting the economic slowdown unfolding across Europe. Its home economy, Germany, in particular, is struggling after slipping into a recession earlier this year, with business sentiment indicators published Tuesday showing further deterioration.

The bank’s shares fell when European markets opened before staging a small rebound. Over the past year, Deutsche Bank shares have risen 31%, underperforming most eurozone bank stocks. During the same period, shares in Italian lender UniCredit, which also reported Wednesday, gained 144%.

Investors are no longer concerned about the solvency of the German bank, but nor have they fully bought into the turnaround story that Chief Executive Christian Sewing has spent five years trying to deliver. His return on tangible equity target for 2025 is above 10%; the median analyst view compiled by Visible Alpha is just 7.9%. Recent financial results don’t seem to justify this much skepticism.