Deutsche Bank delays buyback decision despite 15-year high annual profits.

Despite reporting stellar results for 2022, Deutsche Bank delayed a decision on new share buybacks this year and missed analyst expectations in the fourth quarter.

As a result of rising interest rates and a volatile market, which benefited Germany's largest lender's crucial fixed income trading division, revenue and profits for the entire year both increased to their greatest levels in many years.

Deutsche is net earnings more than doubled to €5.7 billion in 2022, exceeding  expert projections by more than €1 billion and breaking a 15-year record. It benefited from a €1.4 billion accounting tailwind brought on by the US's revaluation of deferred tax assets.

However, the fixed income trading sector fizzled out after gaining market share for nine consecutive quarters. Its sales increased by 27% from a year earlier, which is slightly less than the average increase of 28% at the five largest US investment banks.

As a result, Deutsche is revenue and pre-tax profit in the final quarter of the year fell short of analyst expectations, while costs exceeded those forecasts. Citi analyst Andrew Coombs referred to the results as "disappointing" and the capital return guidance as "vague" in a note to clients.

However, chief executive Christian Sewing stated in a memo to staff that he anticipated further revenue growth in 2023 while credit losses were likely to stay at last year's level. In a climate of inflation, he stated, "Our aspiration is to keep expenses flat on 2022, even if that requires us to become even more ambitious on costs."

The bank stated that it aimed to reduce expenses by €2 billion by 2025, and, on Thursday, Sewing revealed that the board had already decided on "incremental [cost-cutting] programmes." He continued by saying that the lender could not rule out further layoffs in the future.

The bank announced that, while it had postponed a decision regarding any share buybacks this year, it would increase its dividend by 50% to 30 cents per share in 2023. As part of its commitment to return €8 billion in capital to investors by 2025, Deutsche spent €300 million buying back its own stock in 2022.

Sewing said to journalists on Thursday in Frankfurt: "At present, in view of the given macro and regulatory environment, we consider it too early to make any statement on volume and timing for buybacks in 2023." He added that he was "optimistic" that the bank could resume share buybacks later this year.

According to a source familiar with the decision that it was a "managerial decision" rather than one influenced by the regulator, which had to approve buybacks.

The Italian bank UniCredit announced on Tuesday that it would speed up its capital return plans and give shareholders a €5.25 billion return this year after record profits in 2022.

In early trading on Thursday, shares of Deutsche dropped more than 4% to €11.74.

Additional expenses related to "ongoing regulatory discussions" were also passed along to the bank, according to a statement. The expense of litigation increased by almost 50% year over year in the fourth quarter, totaling €413 million for the entire year as opposed to €466 million the year before. Sewing declined to go into specifics about the legal issues but acknowledged that the obstacle was "bigger than we expected".

At the conclusion of a four-year restructuring plan, the lender's return on tangible equity increased to 9.4% of risk-weighted assets, far exceeding the target of 8% and approaching its 2025 target of 10%. James von Moltke, the chief financial officer, said there was "good momentum" toward the 2025 goals.

The bank's common equity tier-one ratio, a crucial indicator of balance sheet strength, increased 0.2 percentage points to 13.4% of risk valued assets, far exceeding its minimum target of 12.5%, even though provisions for credit losses more than doubled to €1.2bn.

The bank's asset management division, DWS, reported outflows of nearly €20 billion last year after experiencing an abrupt and unplanned change in leadership and being shaken by a criminal investigation into an alleged scheme to deceive investors about its green credentials.

By fLEXI tEAM