Deutsche Bank reported first-half net profits of EUR 1.4 bn, in line with the previous year.

The net revenue performance (+20%) and the lower level of provisions (-26%) absorbed the increase in expenses, mainly deriving from the increase in litigation and personnel components.
The cost base of the bank remains a challenge, with a cost/income ratio standing at 84.3%. In Q2 litigation charges accounted for 17% of total costs, with the H1 number being almost 5 times as high as the 2014 provisions (EUR 2.8bn versus EUR 470 mn).

Excluding litigation, H1 earnings performance was strong. In particular, Deutsche registered good progress at CB&S (26% improvement versus H1 21014 excluding CVA/DVA/FVA charges). AWM was the other driver of the growth with a 27% increase in revenues compared to H1 2014, driven by strong volumes and solid net new money.

John Cryan, the newly appointed CEO, and Marcus Schenck, the new CFO excluded a capital increase going forward under normal market circumstances, and confirmed the intention to pursue the capital build-up strategy by shrinking the balance sheet and exiting low value added activities.

Deutsche has warned of further headwinds on its capital ratios linked to a higher RWA intensity, the harmonization of RWA measurement across Europe, and further capital deductions linked to prudent valuation. These headwinds justify, in our view, Deutsche Bank’s strategy of building up strongly its leverage metrics in the medium-term in the context of “Strategy 2020”.

Download Deutsche Bank Q2 2015 Issuer Report