Jain Says Deutsche Bank’s Debt-Trading Revenue Falls
“We currently anticipate debt sales and trading revenues in the third quarter to decline significantly from last year,” Jain, 50, told investors at a conference in London today. “Market activity was substantially lower which has affected our corporate banking and securities revenues.”
Investment banks have seen a slowdown in debt trading, a key portion of their earnings, amid questions about the Federal Reserve’s plans to taper economic stimulus. Jain also cited weaker customer activity, less market volatility and the bank’s own efforts to lower risk at its fixed-income business as contributors to the revenue decline.
Jain, who spoke at an event organized by Bank of America Corp. (BAC), said revenue in the third quarter of 2012 reflected “very active markets” following the European Central Bank’s pledge to fight the sovereign debt crisis by buying the bonds of states that sign up to reforms.
Deutsche Bank, Europe’s biggest investment bank by revenue, fell 2.6 percent to 34.56 euros in Frankfurt today. The shares have gained 4.9 percent this year.
The Frankfurt-based lender relied on its trading and investment banking arm, known as corporate banking and securities, for 46 percent of its 33.7 billion euros ($46 billion) of revenue last year, according to company filings. Sales and trading of debt and other products accounted for 59 percent of the unit’s total, the filings show.
Deutsche Bank’s third-quarter revenue from trading fixed income, currencies and commodities will probably show a decline of 31 percent from a year earlier, London-based analysts at JPMorgan Chase & Co. (JPM) wrote in a note to clients this week. They have an overweight recommendation on shares.
Fed officials have been debating when to slow their $85 billion-a-month pace of bond buying, known as quantitative easing, as the economy recovers and low interest rates prompt investors to take more risk. Economists surveyed by Bloomberg predict the central bank to begin tapering asset purchases in December after the Fed decided last week to maintain the pace.
Jain said the equity sales and trading business continued to perform well in the quarter, while its retail banking, transaction banking and asset management divisions are “in line with our expectations.” Deutsche Bank is scheduled to publish earnings for the third quarter on Oct. 29.
The bank will set aside more cash for litigation, he said, following a 25 percent increase in reserves for legal expenses to 3 billion euros in the second quarter from the previous three-month period. The bank also plans to cut an annual 4.5 billion euros in costs by 2015 and shrink assets by about 16 percent to meet stricter capital rules.
Jain and co-CEO Juergen Fitschen, 65, are spending money defending and settling court cases and regulatory probes that stretch from the U.S. housing market to allegations traders at the company sought to rig interbank lending rates.
“We are watching some of our peers do settlements and drawing our own inferences,” Jain said. “In terms of what we’re dealing with, that picture hasn’t changed materially for quite a long time now.”
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