Trading income surged, litigation costs decreased, and Deutsche Bank's Q2 profit reached its highest level since 2007

In the midst of market volatility triggered by uncertainty in U.S. trade policy, Deutsche Bank achieved a surge in revenue. The bank delivered its strongest second-quarter performance since 2007.

The financial report released on the 24th showed that Deutsche Bank's pre-tax profit for the second quarter soared to €2.4 billion, a significant increase compared to €400 million in the same period last year. This leap was primarily due to a sharp decline in litigation-related expenses. The bank released €85 million in legal provisions during the quarter, while in the same period last year, it had set aside €1.3 billion due to long-term legal disputes related to its acquisition of Postbank.

"We are pleased to deliver the best second quarter and first half profits since 2007," said Deutsche Bank CEO Christian Sewing in a statement. He added that this result puts the bank on track to achieve its 2025 targets and "further enhance capital distribution to shareholders" thereafter.

Buoyed by this positive news, Deutsche Bank's stock price surged by as much as 6.1% in early trading, reaching its highest level in a decade. The bank also reiterated that the upcoming new capital regulatory rules would not affect its shareholder return strategy.

Trading Business Leads, Investment Banking Division Mixed

Deutsche Bank's investment banking division, which contributes about one-third of its revenue, showed a mixed performance this quarter.

On the positive side, amid heightened market volatility, the bank's fixed income and foreign exchange trading (FICC) revenue grew by 11% year-on-year to €2.28 billion, exceeding analysts' estimates of €2 billion. This performance aligns with the average 14% increase in fixed income trading among major Wall Street banks. Deutsche Bank CFO James von Moltke revealed in an interview that the entire investment banking division had a "good start" in the third quarter, adding confidence for the future.

However, its mergers and acquisitions and financing advisory revenue fell by 29% year-on-year, reflecting the industry-wide challenges of slowing global trading activity, which echoed the performance of its Wall Street peers. Nevertheless, James von Moltke stated that despite the recovery in trading being slower than expected, Deutsche Bank remains "committed" to investing in this business segment.

Litigation Clouds Lifted, Cost Control Achievements Significant

In addition to strong revenue performance, improvements on the cost side, particularly the disappearance of litigation expenses, were key to the profit surge this quarter. In stark contrast to last year's substantial legal fees related to the Postbank acquisition, the bank has reached settlements with most plaintiffs this year, alleviating the related financial pressure.

The effectiveness of cost control is also reflected in key efficiency metrics. The financial report showed that Deutsche Bank's cost-to-income ratio for the first half of the year improved significantly from 78.1% in the same period last year to 62.3%, moving towards the annual target of below 65%. **

In terms of profitability, the bank's closely watched average tangible return on equity (ROTE) reached 10.1% in the second quarter, in line with its annual target of over 10%. All business segments, except for retail banking, exceeded the 10% threshold for tangible equity return in the first half of the year, indicating that the returns generated surpassed the cost of capital.

Optimistic Outlook, Reaffirming Commitment to Shareholder Returns

Based on strong performance, Deutsche Bank's management expressed optimism about the future and reaffirmed its commitment to shareholder returns.

Christian Sewing stated, the company is expected to achieve all its targets for 2025 and plans to continue increasing capital allocation to shareholders after 2025. He mentioned earlier this week that global corporations are seeking to diversify their banking relationships beyond the major Wall Street firms, and Deutsche Bank will benefit from this trend.

The bank confirmed on Thursday that it has submitted a stock buyback application to the European Central Bank but did not disclose the specific amount. Management clearly stated that the implementation of the new capital rules known as CRR3 will not affect its dividend strategy