BERLIN (Reuters) – Deutsche Bank <DBKGn.DE> beat first quarter earnings expectations but warned it might miss its capital requirement target this year as it prepares for a spike in defaults and extends more credit in response to the COVID-19 pandemic.
In an unscheduled statement late on Sunday, Deutsche Bank said it expected to report quarterly net income of 66 million euros ($71.42 million) on revenues of 6.4 billion euros. Provisions for credit losses hit 500 million euros, more than three times higher than a year ago.
Deutsche Bank said it would give full details of the results as planned on Wednesday.
Analysts had expected the bank to post a net loss in the quarter and revenues of 5.7 billion euros. The figures indicate that Deutsche, like its competitors on Wall Street, got a revenue lift from a surge in trading as markets swung wildly.
The bank’s shares rose 8.3% in early Frankfurt trade on Monday.
Deutsche Bank has been trying to engineer a turnaround, and some executives and investors privately fear that the pandemic could stall the bank’s restructuring efforts.
“We are firmly committed to mobilising our balance sheet to support our clients, who need us now even more,” Chief Executive Officer Christian Sewing said.
Germany’s biggest lender said it was possible that the bank would fall “modestly and temporarily” below its previous common equity tier 1 (CET 1) target of at least 12.5% due to the current global recession sparked by the coronavirus.
The ratio was 12.8% at the end of the first quarter, down from 13.6% at the end of 2019, including 30 basis points of negative impact from a revised securitization framework and approximately 40 basis points due to the COVID-19 pandemic.
“This revised outlook acknowledges that credit extension to support clients at this time could increase risk weighted assets for several quarters,” it said, adding that pending regulatory changes could also improve the bank’s reported CET 1 ratio.
“Deutsche Bank remains committed to maintaining a significant buffer above its regulatory requirements at all times,” it said. “Deutsche Bank’s priority is to stand by its clients without compromising on capital strength.”
The bank said it was also unlikely to reach its 2020 fully-loaded leverage ratio target of 4.5% without regulatory adjustments to the leverage ratio calculation.
It confirmed its other financial targets, including for 2020 adjusted costs excluding transformation charges and reimbursable expenses of 19.5 billion euros.
Deutsche Bank already warned last month that the impact of the coronavirus outbreak may affect its ability to meet its financial targets as the bank undergoes a major revamp after years of losses.
Last year, Deutsche posted a 5.7 billion euro loss, its fifth in a row, as the cost of its latest turnaround attempt hit earnings.
Until the outbreak of the coronavirus in Europe, things had been looking up for Deutsche this year. Its shares had rallied, it successfully issued a risky bond, regained market share in Germany and added a new top investor.
Europe’s banks are expected to have to set aside billions for potential loan losses because of the coronavirus crisis when
Credit ratings agencies have lowered their outlooks for banks in Germany and throughout Europe.
S&P last week lowered its outlook for Deutsche to negative from stable, noting the bank’s restructuring was “fundamentally on track” but acknowledged “substantial downside risks”.
(Reporting by Emma Thomasson; additional reporting by Tom Sims; Editing by Daniel Wallis and Carmel Crimmins)