Deutsche Bank has ditched an already reduced target for cost cuts this year as Germany’s largest lender warned that it was braced for “higher-than-expected bank levies, inflation, unforeseen costs related to the war in Ukraine and litigation matters”.
The combination of factors has rendered its ambition of bringing costs down to 70 per cent of its income out of reach, Deutsche said on Wednesday. The bank is now aiming for a cost-to-income ratio of up to 75 per cent.
Last year, the bank abandoned its initial aim of bringing annual costs down to €16.7bn and instead switched to targeting a cost-to-income ratio, which at that point stood at 85 per cent.
The acknowledgment of the escalating pressures on cost came as Deutsche Bank reported that second-quarter profits jumped 46 per cent to €1.2bn, far exceeding analyst expectations.
Deutsche confirmed its full-year revenue target of €26bn-€27bn, up from €25.4bn in 2021, but warned that the second half of the year would be “more challenging” than the first, when it had its highest six-month profit since 2011.
It also warned that it would become more difficult to meet its target of generating a post-tax return on tangible assets of at least 8 per cent in the full year. In the second quarter, this critical profitability benchmark stood at 7.9 per cent, up from 5.5 per cent a year earlier.
Its core equity tier one ratio, a crucial indicator of balance sheet strength, stood at 13 per cent at the end of the second quarter, compared with 12.8 per cent a year earlier, despite a tripling of loan loss provisions to €233mn.
“We can deliver growth and rising profits in a challenging environment,” said chief executive Christian Sewing in a statement.