Market commentary: Deutsche Bank AG, Lloyds Banking Group earnings beat, Swiss Central Bank extends losses

US stocks closed little changed on Thursday after gaining for two consecutive days, while the European equity markets snapped a positive session closing higher across the board, with the Euro Stoxx 600 Index opening modestly up today by two tens of a percentage.

Investors will surely be welcoming the good news coming from the European banking sector after both Deutsche Bank AG and Lloyds Banking Group plc reported better-than-expected quarterly results.

Deutsche Bank, the largest European investment bank, posted revenue of €9.2 billion, a 17% growth from a year earlier and ahead of market’s expectations, with the bank’s net income totaling €818 million, more than tripling from the same quarter in 2014.

The German bank has recently been navigating difficult waters, facing declining revenues, shrinking profitability and stalling trading volumes, as well as increasing regulatory scrutiny over multiple allegations concerning its participation in exchange rates manipulations, investments’ misselling and US tax evasion.

The jump in earnings over the second quarter of the year was driven by a rebound in fixed income trading volumes and by positive forex effects, as the Euro’s depreciation over the period in question increased the value of sales conducted in US dollars and other major currencies.

Despite being a rather good news for shareholders, the bank is still facing issues related to its business model, its corporate structure and its estimates for additional legal charges, that has prompted the firm to set aside a sizable provisions amounting to EUR 3.8 billon. The stock soared 5.35% in Frankfurt on Thursday, with the bank’s shares adding almost 25% over the past 12 months and currently standing about half way through recovering the losses recorded in 2014.

Lloyds Banking Group also reported better-than-expected results, posting a first-half profit that grew 38% over the period from January to June this year.

The bank reported a pretax profit of GBP 1.2 billion compared to GBP 863 million last year and declared a GBP 0.75 pence dividend per share, despite taking a GBP 1.4 billion legal charge related to insurance products’ misselling. Lloyds, which was bailout by the UK Government in the awaking of the financial crisis, has since managed to restructure itself and to return to profitability by lowering operational costs and focusing on decreasing bad-loans balances.

The ability of the bank to focus on consumer banking services and lower bad-loans exposure has freed up capital, helping the firm achieving an equity T1 capital ratio of 13.3%, higher than any other UK banking institution.

Shares in Lloyds opened lower today, trading around 0.70% down throughout the morning, however the stock has proved to be a rewarding investment by appreciating close to 13% since the beginning of the year and more than 15% over the past 12 months. The bank’s forward dividend yield stands at 0.88%.

In contrast, the Swiss Central Bank, that has the structure of a privately held corporation, reported a loss of CHF 50.1 billion over the first six months of the year, increasing criticism towards the bank’s decision to abandon its exchange rate cap against the Euro, decision that has caused the institution to book forex losses and has been negatively affecting the Swiss economy at large. The removal of the exchange ceiling has, so far, resulted in a 13% appreciation of the Swiss Franc that is putting pressure on the country’s economy, which largely relies on exports and overseas revenues generated in currencies other than CHF.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.