(Bloomberg) - Deutsche Bank AG expects trading revenue to decline by as much as a fifth this quarter, the first major European investment bank to warn of a significant slowdown.
Fixed income trading will drop 15% to 20% compared with the bumper quarter a year earlier, Chief Financial Officer James von Moltke said Thursday. Analysts were expecting a decline of about 12%.
“We are seeing the trail-off in macro, but actually still quite encouraging activity despite all the things we’ve been through - debt ceiling and what have you,” von Moltke said at an investor conference hosted by Goldman Sachs Group Inc. in Paris. “But compared to this outstanding” period last year, “we’re naturally going to have a step-back.”
The German lender’s shares extended losses after the comments, falling as much as 2.4% in Frankfurt trading.
Deutsche Bank joins Wall Street firms in flagging weaker debt trading, as interest rates near their peak and the economy is likely to enter a recession. JPMorgan Chase & Co. expects revenue from investment banking and trading to each decline 15% from a year ago, and Goldman Sachs has warned of a slump in trading that could exceed 25%. Bank of America Corp. expects its traders to be roughly flat.
A drop of as much as 20% would continue a trend that started in the first quarter, when Deutsche Bank reported 17% lower fixed income revenue. The lender in April announced plans to cut about 800 senior back-office staff as Chief Executive Officer Christian Sewing steps up cost reductions in response.
The trading slowdown is driven by weaker demand for products that allow investors to bet on interest rate or foreign exchange movements, von Moltke said. Overall, however, the environment for banking isn’t all bad, he said, with asset prices holding up.
While trading revenue is down, higher interest rates have fueled income at the corporate and private banking units that were at the center of Sewing’s strategic revamp four years ago. Von Moltke said that tailwind continues, even as the positive effect from higher rates has peaked.
The bank has previously said it expects to make about €28.5 billion ($30.9 billion) in total revenue this year, which would be an increase of about 5% on last year. Von Moltke said the shifting revenue mix — from the investment bank to the retail and commercial lending units — is positive because it shows that the more stable businesses become more important.
(Updates with share price movement in fourth paragraph)
By Steven Arons
