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Deutsche Bank Misses as Debt Traders’ Winning Streak Snaps

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(Bloomberg) — Deutsche Bank AG vowed to increase profit and revenue further this year, after snapping a long streak of market share gains in trading in the final quarter of Chief Executive Officer Christian Sewing’s turnaround plan.

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Fourth-quarter pretax profit and revenue fell short of analysts’ estimates as gains in fixed income trailed Wall Street for the first time in 10 quarters. Chief Financial Officer James von Moltke said despite the rare miss, the trading business that has driven much of Deutsche Bank’s rebound continues to do well this year.

“A little bit of the froth” in trading went away at end of year, von Moltke said in an interview on Bloomberg TV. But “we don’t see that as any signal” for 2023 and are actually “very pleased” with performance.

The results conclude almost four years during which Sewing cut thousands of jobs and focused the lender on its core strengths, relying heavily on his traders to reach a key profitability goal. With the markets rally normalizing and interest rates rising, the CEO has put the onus for the coming years on the corporate and private bank.

Revenue from fixed-income trading, the biggest source of income for Germany’s largest bank, increased 27% from a year earlier, just shy of the average 28% at the five biggest US investment banks. That wasn’t enough to offset a 71% crash in the business of advising on deals, leaving the investment bank with 12% lower revenue.

Despite that hit, profit for the full year was the highest since 2007, Deutsche Bank said. The firm also exceeded Sewing’s 8% profitability target by a wide margin, reporting a 9.4% post-tax return on average tangible shareholders’ equity. Sewing had held onto that goal after abandoning various others.

The lender raised its 2023 revenue guidance to as much as 29 billion euros, from above 28 billion euros previously, tying the improvement to the positive boost from higher interest rates.

For this year, “we expect our revenues to increase again, and our credit loss provisions to remain stable in light of an improving economic outlook,” Sewing said in a letter to staff. “And our aspiration is to keep expenses flat on 2022, even if that requires us to become even more ambitious on costs in an inflationary environment.”

Higher rates have already lifted the income from lending to corporate and retail clients, two businesses that Sewing had prioritized for growth in his strategy early on. Revenue at the corporate bank increased 30% from a year earlier, while the private bank that includes the retail business saw a 23% gain in the quarter.

Credit provisions are likely to be flat this year, Deutsche Bank said, compared with previous expectations that they would likely go up. That’s largely as a result of an improvement in Germany’s energy supplies.

(Updates with CFO comment in third paragraph, outlook from seventh.)

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