Deutsche Bank AG (NYSE:DB, ETR;DBK) is warning of a coming wave of loan defaults in the wake of the COVID-19 pandemic.
Deutsche Bank announced that it has set aside 500 million euros ($542 million U.S.) to cover loan defaults after a better-than-expected first-quarter performance. Provisions for loan defaults at Deutsche Bank are the highest in six years and the lender scrapped its minimum target for capital buffers, the company said in announcing its first quarter-results. The bank’s revenue and net income beat analyst estimates during the first three months of the year.
Chief Executive Officer Christian Sewing has been trying to reassure stakeholders that the bank is entering the crisis stronger than it has been in a long time after they cut risk and refocused it on financing Germany’s exporters. But many of those clients are now hit hard by wide scale lockdowns and disruptions of global supply chains, reviving fears about the ability of the German lender to weather another severe financial crisis.
“This extraordinary economic environment suggests that we will see a higher level of credit defaults,” Deutsche Bank said in a written statement. It said it’s now making use of the “additional headroom” on capital buffers provided by regulators and it’s “therefore possible that the bank will fall modestly and temporarily below its previous CET1 target of at least 12.5%.”
The company announced key earnings figures ahead of more detailed results, which will be published this Wednesday, April 29. Deutsche Bank’s revenue amounted to about 6.4 billion euros and net income of 66 million euros defied analyst predictions for a loss. The figures suggest the lender may have joined Wall Street peers in benefiting from a surge in client trading as the virus triggered violent market swings.
Deutsche Bank shares rose 12%, leading European lenders higher, and was up 11% in trading in Frankfurt, Germany on Monday.