Strong Revenue Performance for Deutsche Bank in Q2, but Revision of Cost Guidance Disappoints

No-moat Deutsche Bank reported second-quarter profits before tax of EUR 1,547 million up 33% versus the same quarter a year ago. These results also came out ahead of consensus estimates of EUR 1,330 million for the quarter, collected by the bank itself. Despite this strong performance, the market seemed more than just unimpressed with shares trading down close to mid-single digit percentage points at the time of writing. We believe the culprit is revised guidance that Deutsche Bank gave for this year, flagging higher than previously anticipated costs due to bank levies, inflation, and for good measure unforeseen costs related to the war in Ukraine, and litigation matters. It also highlighted plans not to cap investments this year, which could further depress performance in the short term. While having previously targeted a cost/income ratio of 70%, it now believes a low- to mid-70% ratio for 2022 is more realistic. We will examine the new guidance and update our model in future. A change to our EUR 11 per-share fair value estimate for the bank is likely to the downside given what we can deduce from the results right now, but we don’t expect a change beyond 10%.