Expectations for Deutsche Bank are low.
So low in fact that a 58% fall in quarterly profit produced a near 4% rise in its stock price.
Here’s the chart:
The figures don’t look great.
Net income at Deutsche Bank fell 58% in the first quarter of 2016 to €236 million (£183 million) from €559 million in the same period (January to March) last year. Group revenue was down 22% and key investment banking areas of debt and equity sales and trading suffered 29% drops.
But it was still better than anyone expected — about half a billion euros better. Analysts expected a loss of €249 million, according to a Reuters poll, so just making some money was considered a win.
John Cryan, the plain-speaking co-CEO of Deutsche Bank, refrained from any cheerleading. “Financial markets were challenging during the first quarter, largely reflecting concerns about the outlook for the global economy,” Cryan said.
“This uncertainty led to a decline in client activity in the capital markets, and our revenues fell from the prior year, most notably in our trading and corporate finance businesses,” Cryan said in a statement on Thursday.
Why were analysts so wide of the mark?
Cryan, for one, has been key in driving down their expectations of the bank’s performance — his tone is unusually dour for a bank chief. Cryan said last month that the turbulence in the markets would hit all banks’ earnings, and “Deutsche Bank is no exception to this.”
In January he said he’d prefer to be running US bank Wells Fargo. “I would love to make 400 basis points in retail banking and have a relatively easy life. Unfortunately there are lots of things I wish for that are not going to come true,” he said.
Cryan was brought in last summer to turn the bank around. Deutsche Bank had been hit by a series of market manipulation scandals in foreign exchange and Libor, and meanwhile tougher capital regulations were eating away at investment banking profits.
Cryan’s mission was to restructure the bank for a future of tough rules, technological advancement, smaller trading and investment banking divisions and weaker global growth.
It’s no small task and his strategy so far has been to get all the bad news out early and rebuild trust with investors from there. And there is quite a lot of bad news.
Investors were never sure how much Deutsche Bank was hiding, but they got their answer with Cryan’s first full year results.
The bank posted a record €6.8 billion loss for 2015 — its first annual loss since 2008 — from legal charges and a reassessment of asset prices.
This was the context of the results posted on Thursday. The image was of a bank that is struggling to stay above water, with a CEO who was cautiously optimistic at best. Any profit is a win in those circumstances.