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Deutsche Bank outpaced by US rivals in investment banking

Deutsche Bank must set its sights higher, its chief executive said on Thursday, after its core investment banking businesses were outpaced by US rivals in the first quarter of the year.

In the three months to March, Germany’s biggest bank managed a net profit of €575m, more than double the €236m it posted in the same period a year earlier, and ahead of analysts’ expectations of €522m.

Revenues fell 9 per cent to €7.3bn. This was partly due to an accounting effect resulting from the theoretical cost of Deutsche buying back its debt, which has recovered in value since the first quarter of last year, when Deutsche was caught up in a brutal market sell-off, and investors fretted about its stability.

But even excluding this effect, Deutsche lost ground on its US peers. On an underlying basis, Deutsche said that revenues in its global markets business were up 9 per cent, while sales in its corporate and investment banking arm were flat.

By contrast, Deutsche’s US rivals managed to boost their investment banking revenues 21 per cent on average in the first quarter. Andrew Coombs, an analyst at Citi, said that the numbers for Deutsche’s investment bank were “weak”.

John Cryan, who has been working to revive Deutsche’s fortunes since becoming chief executive almost two years ago, said that the bank must now focus on restructuring itself and finding ways to return to “prudent growth”.

“Our financial results for the first three months clearly show how important it is to do more in this respect,” he said. “We generated pre-tax profits of €878m. Although this is over one-half more than in the difficult opening quarter of 2016, we must set our sights higher for the longer term.”

Deutsche completed an €8bn capital increase earlier this month in a move designed to shore up faith in its financial strength, which had been sapped by years of weak returns and misconduct charges,

The capital increase pushed Deutsche’s core capital ratio up from 11.8 per cent at the end of December to 14.1 per cent on a pro forma basis for the end of March, and the bank said on Thursday that clients were now beginning to “re-engage” after many withdrew business in the second half of 2016.

Revenues in Deutsche’s private and retail banking division climbed 11 per cent in comparison with the first quarter of 2016, while its Asset Management business reported €5bn of inflows,

Shares in Deutsche were down 2.7 per cent at €16.85 in early morning trading in Frankfurt.

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Via FT