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Deutsche Bank surprises with a quarterly profit

Deutsche Bank delivered a surprise profit in the third quarter, but it is still being overshadowed by legal challenges in the US. On the weekly technical chart, the price is still in a downtrend. Here are the key levels to watch. 

Deutsche Bank
Source: Bloomberg

Germany’s largest bank, Deutsche Bank, has provided a major surprise by delivering a small profit for the third quarter of the year when market analysts had been expecting a loss. It made a net profit of €278 million in the three months to the end of September, despite major restructuring, big costs for legal disputes and low interest rates continuing to weigh on the amount the bank can make from lending.

The cost of legal disputes was unexpectedly low in the third quarter at €501 million. A year earlier, Deutsche Bank had posted a net loss of €6 billion as it booked big writedowns, restructuring costs and legal charges.

Deutsche Bank has been at the centre of investor concerns recently after it emerged the US Department of Justice (DoJ) had sought €14 billion to settle an investigation into alleged miss-selling of mortgage-backed securities in the run up to the financial crisis. The bank has said it has no intention of paying anywhere near that figure, and has only raised the provision it has set aside for litigation to €5.9 billion, from €5.5 billion. It says it has set aside adequate provisions to cover the DoJ settlement and other pending legal disputes.

While the DoJ case is overshadowing Deutsche Bank’s restructuring progress, as chief executive John Cryan admitted, the bank is making progress in reducing risk and bolstering its domestic retail banking operation. Risk-weighted assets decreased by €18 billion compared with the previous year to €385 billion.

Operationally, sales at the domestic retail bank improved to €7.5 billion, from €7.3 billion. Revenues in its investment bank rose 10% to €2.6 billion, buoyed by a strong bond market.

Technical analysis

September saw Deutsche Bank shares hit a low of €10.00, a big psychological level which ultimately held. Subsequent price action saw shares regain ground to move back above the key €11.06-€11.23 zone, bringing price back into the range that was in place during the third quarter.

At the moment, the stock price is approaching a descending trendline and horizontal (€13.93) resistance zone. Alongside this, the 40-week weighted average is worth noting at €13.30. Should this resistance zone hold, then we could see the range resume, with a move back down to €11.06-€11.23.

However, the MACD indicator has already pointed to a positive divergence since February of this year. New lows in Deutsche Bank shares were not confirmed by new lows in this indicator. The MACD is approaching the zero line. With that in mind, a weekly closing price above this cluster of resistance would lead to a new medium-term buy signal.

With a downtrend still intact, we have not yet seen any substantial reversal signals. However, should price break above the descending trendline and €14.83, then we could start seeing the market turn higher. Until that happens, the downtrend remains. 

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