Despite a series of calamities and an impossible domestic market, MarketScreener has always followed the Deutsche Bank saga with curiosity, particularly since the appointment of the patient and meticulous Christian Sewing as head of the group.
In 2022, our analysts were surprised that Deutsche Bank, which had committed to returning €8bn to its shareholders over 2021-2025, had a market capitalization of only €15bn. This reflected the market's extreme mistrust of the bank.
The European banking sector was in tatters at the time, although the ECB had just said that it was preparing to shift its monetary policy. Three years later, the rise in interest rates has indeed provided the long-awaited breath of fresh air.
However, although the improvement is palpable, it remains modest for Deutsche Bank, with net interest margins up only 28% between Q1 2022 and Q1 2025, and fee and commission income stagnating painfully over the period.
On the other hand, administrative expenses have largely escaped rampant inflation—staff, compliance, and information technology costs—and have even fallen significantly, from €5.4 billion to €5.2 billion per quarter. The combined effect of the increase in net interest margin and this strict discipline led to a near doubling of profit before tax and exceptional items, from €1.5 billion to €2.8 billion. Furthermore, as usual, and as we pointed out earlier this year, Deutsche Bank remains highly exposed to the trading activities of its investment bank.
It is once again thanks to these activities that the group achieved its second-best quarter in ten years, with net profit of almost €2bn. The exceptional nature of this profit explains why analysts are reluctant to extrapolate this trend over the year.
There is still work to be done to save the ailing European banking sector. The group, which has closed a third of its branch network in seven years, is still unable to curb the inflation of its administrative costs, as mentioned above.
It is in Germany that the effort will be both the most vital and the most painful—and also the most politically sensitive. A few weeks ago, Deutsche Bank announced 2,000 redundancies in Germany. The announcement did little to impress analysts, especially as it was accompanied by plans for expansion—inevitably costly—in the wealth management segment.
The group led by Christian Sewing has yet to prove that it has truly returned to double-digit profitability. The market is only half convinced, as evidenced by the still very pronounced discount on equity.
However, those who see the glass as half full will note that the current valuation multiple of 0.6x equity has not been seen in exactly ten years.
