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Deutsche Bank ditches cost target after bumper quarterly performance

Deutsche Bank AG updates

Deutsche Bank has ditched a cost cutting target central to chief executive Christian Sewing’s effort to revive the bank’s fortunes, telling shareholders that the transformation was now “significantly advanced.”

The decision to scrap its cost cutting target for 2022 comes shortly after Germany’s biggest bank backtracked from a goal of cutting 18,000 jobs, an ambition first laid out two years ago.

The move came as Deutsche delivered better than expected second-quarter results. Net profits for the period were €692m, comfortably surpassing analysts’ expectations of €372m.

The performance was partly driven by the investment bank, which coped better than its peers with weaker fixed-income trading in the period. Fixed-income trading revenues fell just 11 per cent, beating analysts estimates, as well as Wall Street rivals, which suffered an average decline of 43 per cent.

Kian Abouhossein, an analyst at JPMorgan, said that the second-quarter results were “strong across the board.”

Deutsche pointed to the improved profits to explain that it “will no longer disclose an absolute cost target”, but instead focus on the bank’s cost-to-income ratio instead, which it wants to bring down to 70 per cent from its current level of 80 per cent.

The bank said that its transformation was now “significantly advanced” and that it generated “sustainable profitability in the first half of 2021”. It added that its full year revenue would be higher than previously expected.

Deutsche in December lifted its cost saving target for 2022 by €300m to €16.7bn. In April, however, it acknowledged that costs would be some €400m higher than planned this year due to higher-than-expected bank levies and other unforeseen headwinds.

The bank’s senior management has repeatedly argued that costs are the key benchmark to measure the lender’s restructuring success, as they are the only lever under its control.

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