Deutsche Bank posted a better-than-expected net profit for the first quarter, driven by its investment banking activities which outperformed major US rivals.

The German lender on Wednesday reported a first-quarter net profit attributable to shareholders of €908 million versus a year-earlier loss of €43 million. That beat consensus profit expectations of about €600 million.

It was the strongest quarter for Deutsche since the first quarter of 2014, as revenue at its fixed-income trading business and origination and advisory services surged, trends that have also lifted profits of competing banks.

Deutsche said it now expects revenue to be essentially flat in 2021 compared with a previous estimate of marginally lower. The shares traded 5.4 per cent higher in early morning trading. The bank had hoped to trim costs to €18.5 billion for 2021 but additional costs of about €400 million in bank levies and a German deposit protection scheme following the collapse of Greensill Bank, the lender owned by insolvent UK finance firm Greensill, could make that difficult to achieve.

Radical restructuring

The profit figures were good news for chief executive officer Christian Sewing, who embarked on a radical restructuring two years ago that involved shedding 18,000 staff in an effort to return the bank to profitability.

“These results give us confidence that we’ll reach our 2022 targets,” Sewing said in a statement.

Analysts at Citigroup called it "an impressive quarter" but justified a "sell" rating with expectations the bank will miss a key profitability target – an 8 per cent return on tangible equity in 2022.

The investment bank’s resilience shone through last year, helping Deutsche eke out a small profit for 2020, its first after five years of losses.

Questions remain about the sustainability of the investment banking boom, but analysts expect Deutsche to deliver another profit in 2021, a consensus forecast of their estimates shows.

“The trajectory we are on is significantly ahead” of last year, finance chief James von Moltke told journalists when asked about profit for 2021.

Deutsche’s key fixed-income and currency sales and trading business, with revenue up 34 per cent at nearly €2.5 billion, marked its best quarter since 2015.

That growth is better than some US investment banks. Goldman Sachs reported a 31 per cent rise in such trading in the first quarter, while those at JPMorgan were up 15 per cent.

Origination and advisory services revenue at Deutsche, up 40 per cent, showed its best quarter since 2017. That was partly due to its business in Special Purpose Acquisition Companies (SPACs). Asset management revenue rose 23 per cent.

Low interest rates and a slowdown in global trade pressured revenue at Deutsche’s other divisions, such as those for corporate and retail clients, where revenue stagnated.

Work from home

Meanwhile, the bank is working on plans to allow staff to work from home up to three days a week, as it considers one of the most flexible return-to-office policies among large international banks. The Frankfurt-based lender is "moving to provide our employees some additional flexibility in hybrid working models," Mr von Moltke said in an interview on Bloomberg Television. "It's a range of 40-60 per cent, we think, of flexibility. And it will really be up to the employee, but in a structured way with the manager so we know when people are expected to come to the office."

European lenders including HSBC Holdings Plc and UBS Group AG are paring back office space as they recognise employees' desire for a greater balance between work and family obligations in the wake of the coronavirus crisis. JPMorgan Chase said on Tuesday it expects all staff back to the office on a rotational basis by July, though it has signalled it may consider some flexible arrangements. Goldman Sachs' chief executive David Solomon has said work-from-home is an "aberration".

Deutsche Bank’s plan to return employees to corporate premises is difficult to state definitively, “because it’s so location-specific,” Mr von Moltke said. “We do see that opening coming. And we’d expect in some important locations like London and New York for that to start in the next several months.” – Reuters and Bloomberg