By Tom Sims and Matthias Inverardi
FRANKFURT (Reuters) -Deutsche Bank on Wednesday raised its loan-loss provisions forecast against the backdrop of a weak German economy as the lender returned to profit in the third quarter, and cut reserves for investor lawsuits over its Postbank division.
Germany's largest bank increased its bad-debt provision forecast for the second time over the last few months amid the lacklustre domestic economy. Its shares were 4.9% lower in early trade.
Deutsche's 15-quarter profit streak was interrupted in the second quarter after the bank made a large provision for the Postbank lawsuits. Deutsche has since settled some of the cases and cut provisions by 440 million euros ($475 million), helping to boost profit.
"In these three months, we made important progress in putting legacy litigation matters behind us, while also producing a record third-quarter profit in our operating business," Deutsche Bank CEO Christian Sewing said.
The bank also said it was applying for a share buyback, a move that was on hold because of the Postbank issues.
Deutsche bank revised up its forecast for credit loss provisions to 38 basis points of loans in 2024, up from previous guidance of slightly above 30 basis points. That would put full-year provisions at around 1.8 billion euros, up from 1.5 billion last year, finance chief James von Moltke said.
Von Moltke told journalists integration problems at Postbank were behind part of the increase in provisions because those issues had affected the bank's ability to chase delinquent borrowers.
"It feels the difficult German economic environment has started to impact Deutsche Bank revenues," JPMorgan said in a note.
Net profit attributable to shareholders came in at 1.461 billion euros in the quarter, 42% more than a year earlier and in line with expectations. It logged a loss of 143 million euros in the second quarter.
The Postbank lawsuits - which have been moving through the courts for years and have weighed on Deutsche's share price - claim that the bank underpaid in its acquisition of Postbank.
The purchase of the no-frills lender with its millions of clients and roots in the country's postal system began during the global financial crisis and had been aimed at broadening Deutsche's reach in Germany while gaining a steady income stream.
Deutsche said in April that although it strongly disputed the claims, it had decided to post a provision for the cases of 1.3 billion euros.
While some of those lawsuits have been settled, others remain and a court hearing in one matter is scheduled for later on Wednesday in Cologne.
Deutsche's star performer in the quarter was its investment bank, where revenues rose 11% from a year earlier, above expectations for gains of 6.5% and echoing a strong third quarter at rivals like JPMorgan and Goldman Sachs.
But revenues at Deutsche's other two big divisions were lacklustre.
Revenue at the retail division, which includes Postbank, was flat, in line with expectations. At the corporate bank, revenue fell 3%, when analysts had expected a gain of just under 1%.
Both divisions had benefited in recent quarters from the income generated from higher interest rates, gains that will ease as the European Central Bank cuts interest rates.
Within the investment bank, revenue for fixed-income and currency trading, one of the bank's largest businesses, rose 11%, better than expectations for a 4.6% gain.
Origination and advisory had a strong quarter, with revenue rising 24%, compared with expectations for a 19% increase.
Deutsche Bank is one of several big European banks reporting results this week and next. The sector is expected to show continued profitability, with robust investment banking activity offsetting squeezes on margins and weak loan demand.
Italy's UniCredit's has put the focus back on M&A in European banking with its push for a possible tie-up with Deutsche Bank's smaller domestic rival, Commerzbank (ETR:CBKG). This has prompted speculation that Deutsche may join the fray.
But Deutsche officials have played down such ideas, saying they are focused on their own strategy.
Deutsche has more work to do "before we jump in the ring," von Moltke said.
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