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Yes… But No

27 October 2016 by lberuti

When they reported third quarter earnings this morning, DB ( Deutsche Bank AG ) beat on every line. Net income was €256Mln after a loss of €6.01Bln a year ago and against an average estimate by analysts of a €390Mln loss. CIB revenues were up 10% at €1.96Bln against a €1.86Bln estimate. Common Equity Tier 1 ratio was 11.1% against a 10.9% estimate. Risk Weighted Assets were down 2% (less €18Bln at €385Bln). That initially gave DB’s 5-year risk premium a boost and its 5-year CDS referencing its senior debt was down 15bps at 207bps. But soon, questions begun to be asked. As good as they are, results still lag US peers. Asset Management revenues were up 30% at €823Mln, but DB has seen outflows and a drop in volumes in this division. On litigation, the CEO did not give any update this morning, merely saying that the bank is “working hard on achieving a resolution” with US authorities as part of a push to resolve all major litigation issues this fiscal year. So much so that at the end of the day, DB’s risk premium closed unchanged. Meanwhile, the broader credit market first benefitted from the publication of the results of a few banks (Barclay’s, BBVA, DNB joined DB in reporting good numbers this morning) but the continued rise in interest rates (US 10 years +6bps at 1.85% and German 10 years +9bps at 0.17%) eventually dragged it wider. iTraxx Main and CDXIG were 1bp wider at 723bps and 76bps respectively, while iTraxx Crossover and CDXHY were 5bps and 6bps wider at 326bps and 409bps respectively.