Deutsche Bank AG (DB) Q4 2024 Earnings Call Highlights: Strong Revenue Growth and Strategic ...

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Sat, Feb 1, 2025, 12:05 AM 4 min read

Pre-Provision Profit: Increased by 19% in 2024 compared to 2023, adjusted for specific litigation items and goodwill impairment.
Revenue Growth: 4% year-on-year increase, with 75% from predictable revenue streams.
Adjusted Costs: Decreased by 1% year-on-year to EUR20.4 billion, or EUR20.2 billion excluding specific real estate measures.
Corporate Bank Return on Tangible Equity (RoTE): 13% in 2024, three times its 2021 level.
Investment Bank RoTE: 9% in 2024.
Fixed Income & Currencies Growth: Financing up 12% year-on-year in 2024.
Private Bank Net Inflows: EUR29 billion, supporting noninterest revenue growth of 5% in 2024.
Assets Under Management: Grew by EUR115 billion in 2024, surpassing EUR1 trillion.
Net Interest Income (NII): EUR13.3 billion in 2024, outperforming prior guidance of EUR13.1 billion.
Common Equity Tier 1 (CET1) Ratio: 13.8% in Q4 2024.
Leverage Ratio: 4.6% at the end of Q4 2024.
Issuance Volume: EUR18 billion in 2024, with a 2025 target of EUR15 billion to EUR20 billion.

Warning! GuruFocus has detected 3 Warning Sign with DB.

Release Date: January 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Deutsche Bank AG (NYSE:DB) increased its 2024 pre-provision profit by 19% compared to 2023, driven by revenue momentum and cost discipline.
Revenues grew by 4% year-on-year, with 75% coming from more predictable revenue streams.
The corporate bank delivered a return on tangible equity of 13% in 2024, three times its 2021 level.
The investment bank outperformed its revenue growth target and achieved a RoTE of 9% in 2024.
Asset management surpassed EUR1 trillion in assets under management for the first time, driven by net inflows of EUR42 billion into passive investments.

Negative Points

Deutsche Bank AG (NYSE:DB) faced significant non-operational costs in 2024, predominantly from litigation matters, which masked the underlying strength of the business.
The investment bank's RoTE of 9% is still below the internal cost of capital, indicating room for improvement.
Stage 2 loans increased significantly to EUR64 billion, the highest since 2022, raising concerns about potential credit risks.
The bank's cost-income ratio target for 2025 is below 65%, higher than previously aimed, indicating challenges in cost management.
FX losses on AT1 calls are a concern, with investors expecting calls despite potential FX impacts.

Q & A Highlights

Q: What is Deutsche Bank's target level for Tier 2 capital, and how does it relate to AT1 capital? A: Richard Stewart, Group Treasurer & Head of the Capital Release Unit, explained that Deutsche Bank considers both AT1 and Tier 2 capital in combination, depending on the balance sheet needs at any given time. Currently, they lean towards AT1, but this preference may change as the balance sheet evolves.

Q: How does Deutsche Bank view the potential impact of dropping a G-SIB bucket on its capital requirements? A: James von Moltke, CFO, noted that a drop in the G-SIB bucket could potentially reduce the MDA buffer for CET1 purposes. The domestic O-SII setting, currently at 2%, could also reset downwards if the global G-SIB score decreases, impacting the leverage ratio requirements.

Q: Is Deutsche Bank considering moving from a temporary write-down clause to a contingent conversion clause for AT1 instruments? A: Richard Stewart mentioned that while they are exploring alternatives, the contingent conversion into equity could lead to withholding tax issues under German tax law, making it uneconomical. They continue to look for viable structures.

Q: What is Deutsche Bank's stance on the investment bank's cost of capital and its strategic importance? A: James von Moltke emphasized that the investment bank is a critical part of Deutsche Bank's strategy, integral to their Global Hausbank offering. Despite challenges, the investment bank is on track to meet and exceed its cost of capital, and they are focused on improving profitability and capital utilization.

Q: How does Deutsche Bank approach AT1 calls, considering FX losses and market conditions? A: Richard Stewart explained that they consider FX losses at a portfolio level and assess each call on a deal-specific basis. They factor in market conditions, investor expectations, and regulatory approvals when making call decisions.

Q: What is Deutsche Bank's strategy for penetrating the German Mittelstand market? A: James von Moltke highlighted that Deutsche Bank aims to leverage its international and capital markets capabilities to serve the Mittelstand. They focus on providing competitive pricing and enhancing client interactions through technology to differentiate themselves in this market.

Q: How does Deutsche Bank manage its leverage ratio, and what are its long-term targets? A: Richard Stewart stated that Deutsche Bank aims to maintain a leverage ratio above 4.5% and gradually move towards 5% over time. This target is influenced by business growth and organic capital development.

Q: What are Deutsche Bank's plans regarding Tier 2 issuance following regulatory changes? A: Richard Stewart indicated that while Tier 2 is not the preferred instrument for 2025, it may become more favorable in the future. The decision is based on achieving funding, liquidity, and capital objectives.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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