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What’s going on?

Deutsche Bank reported its highest quarterly profit in nearly a decade on Wednesday, but Germany’s biggest bank can’t relax just yet…

What does this mean?

There’s been a flurry of dealmaking in the last couple of years, but the threat of higher interest rates – which drives up the cost of borrowing – has helped bring that to a halt. That’s less than ideal for Deutsche Bank, whose revenue in its deal advisory segment fell 28% last quarter compared to the same time last year. Still, it made up for the shortfall elsewhere: its fixed income and currency trading business grew revenue by 15%, as traders took advantage of the recent market volatility. Its interest income from both corporate and private clients rose too, which – along with some savvy cost-cutting – helped bring up its overall profit by a better-than-expected 18%.

Why should I care?

For markets: Profit beats caution.

Deutsche did warn that the Ukrainian war – which is pushing global prices even higher – posed a real risk to its growth going forward, as did a weakening global economy. That might be why
the bank put aside $320 billion last quarter in case customers can’t pay back their debts. That’s three times more than it tucked away in the first quarter of 2021, and it warned it’ll add “significantly” to that stockpile throughout the year. Investors, though, seemed to favor short-term profit over long-term caution, and they sent its stock down 6% on the news.

Zooming out: Two can play at that game.

No wonder Deutsche Bank is such a Debbie Downer: the bank warned this month that Germany – its biggest market – would fall into recession if there was a meaningful disruption to Russian gas supplies. And there could well be, given that it’s been pushing back against Russia’s demands to pay for its gas in rubles. After all, that principled move just backfired on Poland and Bulgaria: Russia’s cut them off, sending European gas prices up 20%.

Originally Posted April 27, 2022 – No Chill

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