Deutsche Bank Posts Profit as Investment Banking Unit Booms – The Wall Street Journal

Some analysts, however, have questioned the sustainability of the results. Deutsche Bank shares were down over 1% midmorning.

Lower costs and lower-than-expected losses from bad loans drove it to a €624 million profit for the year, equivalent to $749 million, swinging from a €5.27 billion loss in 2019. It is the most significant profit the bank has made in six years, which were mostly marked by big losses.

“We have built firm foundations for sustainable profitability, and are confident that this overall positive trend will continue in 2021, despite these challenging times,” Chief Executive Christian Sewing said.

The better-than-expected results are encouraging for the lender, which promised investors in 2019 it would remake itself following years of disappointing results and legal troubles. Investors have pinned their hopes on Deutsche Bank’s aim of cutting staff and making cost savings, something it has failed to follow through on for years. On Thursday, it reported a 15% drop in expenses in 2020 as it cut staff, consolidated trading platforms and saved on travel, beating analysts’ estimates.

Mr. Sewing’s focus on making Deutsche Bank leaner puts it ahead of its European peers, which have stepped up their own cost-cutting efforts after it became clear the pandemic would dent profits. Last week, Deutsche Bank’s home competitor Commerzbank AG said it planned to cut one in every three jobs in Germany through 2024. Banks across Europe are also closing branches.

Deutsche Bank’s task going forward is to stay profitable as trading activity normalizes at its investment bank, while its corporate and lending businesses struggle to grow. 

Mr. Sewing said investment banking had a very good start this year after revenue rose 32% last year, including 24% in the last quarter. The bank beat many Wall Street peers in fixed-income trading, its strongest business line in that unit. 

“While Deutsche Bank continues to see positive trading momentum in early 2021, the outlook remains uncertain,” said Anke Reingen, an analyst at RBC Capital Markets.

Another challenge for the bank will be to improve its corporate and retail businesses, which saw a drop in revenue of 2% and 1%, respectively, last year. Mr. Sewing said the bank has been able to pass on some of effects of negative interest rates to corporate customers by charging on deposits. It is also attracting retail customers to investments, making money from fees.

Deutsche Bank posted a €189 million profit for the last quarter, swinging from a €1.48 billion loss it reported a year ago when it was hit by restructuring charges. It beat analysts’ estimate of a €168 million loss, which included higher provisions for credit losses than the bank reported.

The bank set aside €251 million in the last three months of the year to cover bad loans, bringing the total to €1.79 billion. Bank officials have said bad loans are contained because of Deutsche Bank’s high exposure to low-risk German mortgage borrowers and low exposure to sectors most impacted by the crisis.

Andrea Enria, head of banking supervision at the European Central Bank, last week expressed concerns that banks in the eurozone aren’t properly evaluating the impact of the pandemic on the financial health of borrowers. He warned that it could result in a sudden cascade of defaults.

While Germany’s economy has performed better than many peers during the pandemic largely thanks to generous government support measures, it still contracted 5% in 2020. The country is currently under a lockdown.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com