Deutsche Bank Profit Jumps as Securities Unit Tops Estimates

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Deutsche Bank AG rose in Frankfurt trading as Co-Chief Executive Officer John Cryan dismissed speculation that the lender may tap investors to bolster capital.

“I am aware that there has been some speculation that we might be considering raising additional capital,” Cryan told analysts Thursday after the bank reported higher profit. “It’s my firm opinion that raising additional capital would not solve our core problem of reversing our low financial returns and our poor organic capital generation.”

The shares rose as much as 4.9 percent and were 4.7 percent higher at 31.67 euros as of 5:00 p.m. in Frankfurt.

Second-quarter profit more than tripled as trading revenue at Europe’s biggest investment bank offset an escalation in legal expenses. Cryan, who replaced Anshu Jain this month, is pressing ahead with plans to reduce costs and cut back businesses to improve profitability and capital buffers.

Deutsche Bank’s common equity Tier 1 capital ratio, a key measure of financial strength, rose to 11.4 percent from 11.1 percent at the end of the first quarter as the bank unloaded some risk-weighted assets.

Profit Increase

That progress “will be well received, given capital concerns,” Kinner Lakhani, an analyst at Citigroup Inc. who recommends investors buy the shares, wrote in a note.

Net income in the second quarter was 796 million euros ($872 million), up from 237 million euros a year earlier. The bank reported 1.2 billion euros of legal expenses, more than twice the 550 million euros five analysts had expected on average.

The increase in profit in the second quarter was partly driven by a lower tax burden compared with a year ago. Revenue was also helped by the euro’s decline versus the dollar compared to a year earlier.

The bank faces “material headwinds” in the second half and its investment banking and trading unit will probably see revenue decline in the period, Chief Financial Officer Marcus Schenck said on the conference call.

Deutsche Bank’s revenue from trading debt and currencies jumped 16 percent to 2.11 billion euros, exceeding the 1.86 billion euros seven analysts had expected on average. Equity trading revenue jumped 39 percent to 975 million euros.

Strategic Overhaul

The bank bucked the trend in debt trading after the eight other top global investment banks saw their combined income from trading fixed income, currencies and commodities fall 12 percent to $13.9 billion in the second quarter from a year earlier, data compiled by Bloomberg Intelligence show.

Currency trading and distressed debt boosted revenue because of increased market volatility. The rates business saw higher demand in Europe while credit and emerging-market debt trading experienced difficult market conditions, the bank said.

“I assumed we’d see lower debt trading revenue, which would make the whole strategy debate go down easier,” said Stefan Bongardt, an analyst at Independent Research GmbH in Frankfurt, who has a hold recommendation on the stock. “If debt trading would have been down, it would be easier to take capital out of debt trading and allocate it to transaction banking or wealth management.”

Cryan inherited a two-month-old plan by Jain and co-CEO Juergen Fitschen to lift returns by lowering adjusted expenses by about 15 percent by 2020 and shrinking the investment bank by as much as 17 percent through 2018. He said he will provide details of the strategy in October.

“Our financial performance does not reflect our tremendous potential,” Cryan wrote in a letter to staff published on the bank’s website Thursday.

Deutsche Bank provided investors with confidence on the “key long-term issues” of its ability to lift its capital ratios and deal with legal matters, JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan wrote in an e-mailed report from London. They have an overweight recommendation on the shares.

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