When it comes to Deutsche Bank and their never-ending quest to “turn it around”, any good news is welcome even if there are a lot of caveats and fine print.

To be clear, I’m not keen on beating this dead horse, primarily because it’s the same story quarter after quarter after quarter. I remember when it was possible to decompose the phrase “turn it around” into specific areas that investors expected Deutsche to focus on in a given quarter, but eventually, the “it” in “turn it around” came to mean “everything”, as the bad news continued to pile up.

Christian Sewing thinks maybe he can do what no one else in recent memory has been able to accomplish and so far, he’s done his best Oppenheimer impression: “Now I am become pink slip, the destroyer of jobs”.

In any event, Deutsche issued preliminary results on Monday, more than a week ahead of the official date and the news was positive – or what counts as “positive” in this context.

When you read the press release, you almost feel bad for them because they’re clearly excited about this. But a quick skim of the available information is all you need to know why there’s not actually much here.

Short story short (that’s “short” two ways), the bank is tipping net income of €400 million for Q2 on IBIT of €700 million, numbers management describes as “considerably above the average consensus estimate”. Here’s their assessment of their own quarter:

[We] believe that these results demonstrate the resilience of the franchise.

Shares were up more than 9% at one point in Frankfurt, and they’ve largely held gains, rising the most since April of last year.

Again, any news is good news here, but do note this line in the release:

Within CIB, revenues include approximately 100 million euros from a gain on an asset sale and debt valuation adjustments reflecting a widening of Deutsche Bank’s credit spreads during the quarter.

So basically, there’s €100 million worth of one-off gains in there including a DVA adjustment which, colloquially speaking, is just Deutsche Bank benefiting from the poor performance of its debt.

That asset sale and the DVA adjustment don’t look like they were in consensus.

Here’s what one Markus Riesselmann (an analyst with Independent Research) told Bloomberg:

It’s not entirely clear where the beat is coming from, but if it’s mostly from widening credit spreads, then it’s probably not sustainable. In fact, trading revenue seems to have decreased more than forecast, indicating that the bank still has a long way to go.

Yes, Markus, trading revenue does seem to have “decreased more than forecast.”

Specifically, it fell 15% YoY to €1.9 billion, which does not stack up well with JPMorgan (for instance), where trading revenue jumped 16%, according to results out last week. Goldman notes that “the FX (€/US$) accounts for a ~ 8% headwind YoY [but] regardless, the market share loss vs US peers seems to have carried into 2Q, in line with our expectations / guidance.”

Goldman (Neutral) really doesn’t sound all that amused with this, although they acknowledge that investors will take whatever they can get.

“Amongst multiple negative events (recent credit rating agencies downgrades, failure of DBK’s US Intermediate Holding Company to pass CCAR, rising CDS and the falling share price, etc.), this should come as a good piece of news”, Goldman says, after taking what I imagine was about 15 minutes to skim these numbers, before offering up the following skeptical caveat:

Regardless, we caution that with a 3% ROTE for the quarter this result confirms again the persistent profitability challenges at the bank.

But before you get too cynical, Barclays adds the following relatively upbeat assessment ahead of the full results later this month:

Capital is better than expectations, with the CET1 ratio c.30bps above, and the leverage ratio 20bps better. Given the delta in net profit is only c.EUR241m, it suggests the group has made meaningful progress in bringing down RWA and leverage exposure by period end.

Make of it what you will.

Full release

Frankfurt am Main, July 16, 2018.10.25 CET — Deutsche Bank (XETRA: DBKGn.DE/NYSE: DB) expects to report income before income taxes (IBIT) of approximately 700 million euros and net income of approximately 400 million euros for the second quarter of 2018. For the first half of 2018, Deutsche Bank expects to report IBIT of approximately 1.15 billion euros. Management believes that these results demonstrate the resilience of the franchise.

The results are considerably above the average consensus estimate, as compiled by Deutsche Bank and published on July 11, 2018, triggering an ad hoc announcement in line with BaFin guidelines. The published average of analysts’ estimates is IBIT of 321 million euros and net income of 159 million euros.

In the second quarter, group revenues are expected to be approximately 6.6 billion euros, compared to an average consensus estimate of 6.4 billion euros. Group revenues include approximately 3.5 billion euros of revenues in the Corporate & Investment Bank (CIB). Within CIB, revenues include approximately 100 million euros from a gain on an asset sale and debt valuation adjustments reflecting a widening of Deutsche Bank’s credit spreads during the quarter. Compared to the prior year quarter, reported Sales & Trading revenues are expected to decline by approximately 15%, while Origination & Advisory revenues are expected to increase by 2%.

Group noninterest expenses are expected to be approximately 5.8 billion euros, compared to a consensus estimate of 6.0 billion euros. Noninterest expenses are expected to include restructuring and severance charges of approximately 0.2 billion euros and a small release of litigation provisions. Restructuring actions have progressed rapidly in the second quarter with headcount down by approximately 1,700 full-time equivalents to slightly above 95,400.

Preliminary estimates of the group’s capital ratios as of June 30, 2018 are also higher than consensus expectations. The Common Equity Tier 1 capital ratio is expected to be approximately 13.6%, compared to the average consensus estimate of 13.3%. The fully loaded leverage ratio is forecast to be approximately 3.9%, compared to a 3.7% average consensus expectation.
All these amounts are preliminary. Full details of the second quarter results will be disclosed as planned on July 25, 2018.