Deutsche Bank AG (DB) is scheduled to report its third-quarter 2014 results on Wednesday, Oct 29.
In the last quarter, this foreign bank delivered disappointing earnings with a 29% year-over-year decline in net income. Lower top-line performance was recorded in the quarter reflecting continuing uncertainty around emerging markets. However, decreased expenses, lower provision for credit losses and a strong capital position were the positives.
Will Deutsche Bank impress in the upcoming release after combating the challenges the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q3 Results
Amid the ongoing various legal issues along with investigations related to shoddy mortgage practices and manipulation of interest rates, last week, Deutsche Bank announced litigation costs of €894 million ($1.13 billion) to be recorded in the third quarter as additional money has been kept aside to meet legal needs. Notably, including the additional money reserved for lawful issues, the amount sums to about €3 billion.
Repositioning of business fundamentals to withstand any further crisis remains the trend of non-U.S. banks in the quarter. Though defensive actions like limiting expenses are still in place and focus on non-interest income is increasing, margin compression and sluggish loan growth would act as the major dampeners.
Further, a prolonged low interest rate environment is not expected to reverse any time soon as central banks of most of the countries will continue to prioritize growth over inflation control. This strategy is sustainable as inflation is the concern of only a few emerging economies. Thus, banks operating in a low interest rate environment will not be able boost revenues through interest income.
The Federal Reserve’s stricter capital rules for foreign banking organizations (FBOs) sizably operating in the U.S. could cripple their balance sheet. According to the new rules, the U.S. operations of foreign banks need to hold risk-based capital, liquidity and leverage similar to their U.S. peers with effect from Jul 1, 2016.
Anyway, amid several litigation issues and internal inefficiencies, Deutsche Bank is striving hard through restructuring initiatives that focus on building capital levels to achieve operational efficiency and reduce risk-weighted assets (RWAs).
Other foreign banks that are expected to release results in the coming days include Itau Unibanco Holding S.A. (ITUB), Royal Bank of Canada (RY) and HSBC Holdings plc (HSBC). HSBC will report third-quarter 2014 results on Nov 3 and Itau Unibanco on Nov 4, while Royal Bank of Canada is scheduled to report its fourth-quarter fiscal 2014 (ended Sep 30) results on Dec 3.
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