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Treasury

Deutsche hit by litigation charge amid mixed earnings for transaction banks

Pre-tax profits from Deutsche Bank’s global transaction banking business fell 29% in the second quarter compared with a year earlier, as the business – a core part of its growth strategy – was hit by a 'litigation-related charge'.

In reporting quarterly earnings this week, Deutsche said income before income taxes from its GTB business dropped to €228 million from €322 million a year earlier, due largely to the impact of this charge.

Deutsche declined to comment on the charge’s exact nature, but said in its earnings announcement it had pushed up GTB’s non-interest expenses by 20% to €759 million, and that “investments in platforms to enable business growth and higher expenses to comply with regulatory requirements contributed to the increase”.

GTB’s revenue performance, while stable, was also flat at €1 billion compared with the same quarter a year ago, even though it said revenues in its trade finance and trust and securities services units increased on strong volume growth. Cash management revenues were also “solid”, despite the low interest-rate environment, Deutsche said.

Importantly, the bank’s provision for credit losses in the second quarter declined 41% to €47 million compared with a year ago, but compared with the first quarter, provision for credit losses increased by €23 million, which “was predominantly driven by higher provisions in the commercial banking activities in the Netherlands”, Deutsche said.

By comparison, Deutsche’s corporate banking and securities division reported a 1% decline in net revenues to €3.5 billion. However, income before income taxes came in at €885 million for CB&S, an increase of €127 million compared with a year ago, and mainly driven by a decrease in non-interest expenses.

Deutsche said non-interest expenses fell 7% to €2.6 billion, reflecting “lower performance-based compensation and litigation charges”.

Mixed bag

The second quarter has been a mixed one for banks’ transaction services businesses.

US banks kicked-off results season earlier this month with Bank of America Merrill Lynch (BAML), Citi and JPMorgan reporting reasonably stable quarterly revenues, although JPM was the only bank of the three to report a fall in revenues compared with last year.

BAML said revenues from its global transaction services business nudged up $50 million to $1.5 billion compared with a year earlier, contributing a good chunk to the $4.4 billion of revenues generated by its global banking business in the quarter.

By comparison, Citi reported revenues from its treasury and trade solutions business rose 3% to just over $2 billion “as volume and fee growth more than offset the impact of spread compression globally”, the bank said.

For JPM, revenues from its treasury services business fell 4% to just over $1 billion compared with a year earlier as a result of what the bank said was “lower trade finance revenue as well as the impact of business simplification of initiatives”.

Other than Deutsche Bank, European banks tend not to breakdown the financial performance of their transaction services businesses in their earnings announcements, despite many of these banks saying this area is of strategic importance to them. 

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