Deutsche Bank figures halved after record fine for Libor rigging

Deutsche Bank's first-quarter profits fell by almost 50 per cent as the $2.5bn fine for the German lender's role in the Libor affair offset a surge in its revenues.

In the three months to the end of March, Germany's biggest bank posted net profits of €559m, or €0.39 per share, down from €1.1bn a year earlier. Analysts had expected €655m, according to a Reuters poll.

The record Libor fine, to settle allegations that it manipulated the Libor benchmark rate, took the shine off a strong underlying performance by the German bank. Revenues climbed 24 per cent to €10.4bn, thanks to increases in its four divisions, as well as favourable currency movements.

Anshu Jain and Jurgen Fitschen, the bank's co-chief executives, said that the results provided a good launch pad for Deutsche's new strategy, which they are due to spell out in detail on Monday.

The bank said on Friday night that it would split off its Postbank retail business, pare back assets in its investment bank, and invest in its wealth and asset management and global transaction banking divisions.

The first-quarter results provided an illustration of the difficult conditions in the German retail banking market, to which Deutsche's plan to split off Postbank is a response.

While revenues rose 15 per cent in Deutsche's investment banking division, 11 per cent in its global transaction business and 29 per cent in its asset and wealth management arm, they rose just 0.8 per cent in its retail banking business.

However, the results also highlight the challenges that Deutsche faces at its investment bank, which accounts for 47 per cent of group revenues.

A return of market volatility helped drive the 15 per cent rise in investment banking revenues in the first quarter, but the equity allocated to the division rose by 46 per cent, largely because of regulations forcing banks to hold more equity for investment banking activities.

Higher levels of equity decrease banks' return on equity, and make them less attractive to shareholders; Deutsche is expected to announce cuts to activities that demand the most equity when it announces its new strategy on Monday morning.

The boom in first-quarter revenues was also heavily skewed towards equity sales and trading revenues, the smaller of Deutsche's trading businesses. Net revenues from equity sales and trading rose 31 per cent, to €1bn, while net revenues at the far bigger debt sales and trading unit rose just 9 per cent to €2.6bn.

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Deutsche's advisory business enjoyed a 36 per cent rise in revenue to €145m. Despite the surge in revenue, the investment bank's net income was down 55 per cent to €643m after a surge in non-interest costs.

"The increase was driven by materially higher litigation costs, adverse foreign exchange movements and regulatory required expenditures," Deutsche Bank said. "These increases offset the savings from [operating expenses] and lower compensation costs."

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