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Deutsche Bank suffers setback with trading revenue drop

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Via Financial Times

Deutsche Bank’s fixed income trading unit trailed well behind rivals during the third quarter in the latest sign of the steep hurdles Germany’s biggest lender faces in its efforts to turn round the fortunes of its investment bank.

Revenue in fixed income trading — by far the biggest remaining unit of Deutsche’s downsized investment bank — fell 13 per cent year-on-year to €1.23bn. The decline is further evidence that Deutsche is falling behind its large US rivals which on average reported an 11 per cent increase in the metric.

Deutsche blamed the decline in fixed income trading, which includes bonds and currencies, on low market volatility in foreign exchange markets. It also pointed to “business restructuring and challenging market conditions” in its rates unit, which handles sovereign bonds and other related products, and emerging markets debt which triggered “some risk management losses”.

The lender’s shares fell more than 5 per cent in early Frankfurt trading on Wednesday, one of the biggest decliners in the European Stoxx 600, setting the stock on track for its biggest percentage drop since February. The share price is not far off its lowest level, which it hit in August, in at least 20 years.

The investment bank’s pre-tax profit tumbled 73 per cent to €64m. Due to a change in its financial reporting structure and the restructuring, a detailed analyst consensus did not exist prior to the quarterly results.

On the group level, a 15 per cent fall in revenue and restructuring costs led to a net loss of €832m in the quarter. While the core bank generated €352m in pre-tax profit, Deutsche’s bad bank, which is home to the group’s unwanted assets, sustained a €1bn loss before tax. The lender said its asset disposals were on track. It also reconfirmed its cost-cutting target for the full year.

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For the first time since the acquisition of German retail bank Postbank a decade ago, the number of employees has fallen slightly below the symbolic threshold of 90,000.

Its core tier one equity ratio — a key indicator of balance sheet strength — was unchanged compared to the previous quarter at 13.4 per cent.

Chief executive Christian Sewing stressed in a statement that all four core business units were profitable “despite having launched the most comprehensive restructuring of our bank in two decades”.

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