Deutsche Bank’s share price: What to expect from earnings

There is a sense of optimism around Deutsche Bank’s [DB] share price. The stock has gained almost 40% since mid-March, with gains of over 13% in the past month. Much of this can be attributed to CEO Christian Sewing. Under his leadership, the bank has put in place a turnaround strategy following a disastrous 2019 that saw the bank endure a regulatory probe, a failed merger with Commerzbank and a spectacular drop in Deutsche Bank’s share price. 

However, the coronavirus outbreak has slowed the pace of the bank’s reinvention and Deutsche Bank’s [CBK.ETR] share price gains. Investors will be keen to find just how slow the pace now is in upcoming third quarter results.

When is Deutsche Bank reporting earnings?

28 October

What happened last quarter?

Deutsche Bank’s share price suffered slightly after it announced a net loss of €77m in the second quarter. Although not ideal, this was better than analyst expectations and topped the €3.2bn loss seen in the same period last year, and Deutsche Bank’s share price rallied less than a week later.

Money set aside to cover losses due to the coronavirus came in at €761m, up from the previous quarter’s €506m. In the quarter, the bank reaffirmed its guidance for credit losses for the year. It will be interesting to see if the guidance changes in light of a second coronavirus wave. Should this figure alter, Deutsche Bank’s share price could move post-earnings. 

“In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets.” Sewing said in a statement.

“In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets.” - Christian Sewing, Deutsche Bank CEO

Cost cutting strategy picks up momentum

Under Sewing's stewardship last year, Deutsche Bank embarked on an ambitious restructuring program. This included abandoning its aspiration to be a worldwide equities bank, axing 18,000 jobs and setting up a €280bn “bad bank”. In total, Deutsche Bank hoped to achieve €5.8bn in cost reductions and get to an 8% post-tax return on tangible equity in 2022. Any suggestion in Q3 earnings that this is a real possibility could see Deutsche Bank’s share price rise.

In the first three months of 2020, Deutsche Bank laid off 1,000 employees as part of this plan. Since then the plan has slowed due to a moratorium on dismissals earlier this year triggered by the pandemic.

“I can’t tell you as I sit here today if we can compensate for the slowdown,” said Deutsche Bank CFO James von Moltke, pledging that the bank would meet its 2022 target.

“I can’t tell you as I sit here today if we can compensate for the slowdown” - James von Moltke, Deutsche Bank CFO

Since, the plan looks to have picked up momentum. Bloomb​erg has reported that Deutsche Bank is to sell a technology unit to Tata Consulting Services. The sale of PostBank Systems, which employs 1,400 people, will help Sewing get closer to this job cuts target. This followed September’s announcement that the bank would close 100 of its 500 branches in Germany, reducing the workforce significantly.

Deutsche Bank's retail unit, which includes high-street banks, makes up a third of the bank's revenue, with a €269m pre-tax loss in 2019. According to the Financial Times, von Moltke said the unit had performed well in the third quarter along with the investment bank. Proof of this in its upcoming Q3 earnings report is likely to bolster Deutsche Bank’s share price.

Where next for Deutsche Bank’s share price?

When it last updated the markets, the bank itself said it expects full-year revenue will be “essentially flat”. Any change to this could influence Deutsche Bank’s share price post-earnings. If Sewing’s cost-cutting strategy keeps reducing losses, the share price could bounce post-earnings. 

The lone forecast on Yahoo Finance predicts a loss of $0.01 per share for the quarter, down from the $0.19 loss per share seen in the same period last year. Revenue is forecast at $6.48bn, an 11.7% increase from $5.8bn last year.

Deutsche Bank's share price vitals, Yahoo Finance, 27 October 2020