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Transaction banking revenues stable but under pressure

The third quarter performance of Deutsche Bank and Standard Chartered’s transaction banking divisions shows how stable revenues and profits can be from the business, but this resilience is being tested by pressure points, not least competition.

Deutsche Bank’s global transaction banking (GTB) business delivered pre-tax profits of €379 million in the third quarter, slightly up on the same period last year, despite the challenges of a “difficult macroeconomic environment, low interest rates in core markets, and competitive pressures on margins,” the bank said.

Pre-tax profits were generated on the back of €1 billion of net revenues in GTB – flat to the same period a year ago – and supported by a 14% fall in non-interest expenses.

This performance was solid as oppose to stellar, but given the group’s results were marred by €1.2 billion of litigation charges – slashing pre-tax profits to €18 million – and hampered by an underperforming corporate banking and securities division, GTB may be seen as one of few bright spots in the Deutsche’s third quarter.

Within GTB, Deutsche said its trade finance business delivered solid revenues due to strong volumes, while revenues in trust and securities services were stable, “as higher volumes counterbalanced the impact from low interest rates”. Revenues in cash management were also impacted by low interest rates in core markets.

Deutsche said provision for credit losses in GTB edged up to €58 million compared with a year ago, an increase largely related to volume growth in trade finance and higher provisions for the bank’s commercial banking activities in the Netherlands.

For Standard Chartered, which doesn’t disclose its performance numbers in its interim management statement, it said that in both the year to date (September 30) and the third quarter income from its transaction banking business fell by a “mid single digit percentage” compared with a year earlier.

Standard Chartered said that volumes across its cash and trade business, and consistent with the first half, remain strong, and up by double digit percentages both for the year to date and when compared with the third quarter of last year.

Revealingly, the bank said that “margins in the third quarter remain materially lower than in the equivalent quarter of 2012, with margins in trade now some 26 basis points lower, and margins in cash some 15 basis points lower.”

However, Standard Chartered said that margins in both trade and cash are now broadly stabilizing.

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