Germany's largest private banks are celebrating a comeback on the stock market. But are the price gains of Deutsche Bank and Commerzbank sustainable? Why investors should be careful in 2024.

Higher earnings, higher profits – thanks to the interest rate turnaround, Deutsche Bank and Commerzbank are making real money again. Commerzbank has more profit in its books for 2023 than ever before in the company's 150-year history. And it just had its best quarter in 13 years. Deutsche Bank did even better: 4.2 billion euros in profit – one of the highest in years. The days when it made billions in losses, as was most recently the case in 2019, seem to be over.

The economic success is reflected in the share price. This year, Commerzbank shares have gained 40 percent on the stock market, reaching their highest level since 2012. Deutsche Bank shares have gained 25 percent since the beginning of the year, returning to the price level of 2017. In the long term – and that is what the stock market is mainly about – they are leading the price race: 125 percent in five years is a big number, while Commerzbank's share price is up 100 percent.

After years of involuntary abstinence, both banks are paying dividends again: Deutsche Bank shareholders can look forward to 45 cents per share – last year it was 30 cents. Commerzbank is paying 35 cents, up from 20 cents a year ago.

And yet, there are several reasons why investors should approach economic success and stock market gains with caution.

Interest income as a driver of success

First of all, the “secret” of the current success is the interest surplus – and this depends largely on the monetary policy of the European Central Bank (ECB).

Net interest income is the part of the income that banks earn from interest transactions. Banks invest money with the ECB and receive interest in return. Since the central bank raised the key interest rates two years ago, net interest income has been rising. In addition, when banks give their customers loans, they also receive more money in return. On the other hand, they do not pass on the increased interest rates in full to their savers and profit from this difference.


In times of zero or even negative interest rates, the situation was different: deposits at the ECB alone cost the banks billions. In addition, they themselves received little interest for lending money.

At Deutsche Bank, interest-bearing transactions alone account for 45 percent of all revenue. Commerzbank benefits from the fact that it has mainly private and medium-sized customers who bring in a lot of lending business. And to date, banks have had to set aside comparatively little money for potentially defaulting loans.

What if the interest rate party ends?

But as good as the past year and the first quarter of this year went, the earnings outlook is getting gloomier, because the European interest rate party is likely to end soon: In June, the European Central Bank should announce the first cut in key interest rates. This is generally considered certain on the capital markets. Inflation data in the eurozone allow for an initial interest rate cut. What will happen after that is unclear: Most experts expect interest rates to be cut two more times this year.

For the banking industry, this means lower earnings. And on the other hand, interest rates are not falling so quickly and so sharply that companies are again aiming for such high investments that the banks are making money from the sheer volume. On the contrary: many companies have to remain frugal because they earn less in the economic downturn.

Billions at risk because of Postbank?

In addition, Deutsche Bank is exposed to the risk of Postbank. Just one day after Deutsche Bank reported record profits for the first quarter, it had to announce a provision for the second quarter of the year: It has to set aside a whopping 1.3 billion euros in case it loses a legal dispute with former shareholders of its subsidiary Postbank. They have sued Deutsche Bank. Their accusation is that Deutsche Bank paid Postbank's shareholders too little money when it took over the bank.

In addition, Postbank's IT problems are not leaving the bank untouched. Recently, customers have repeatedly been unable to access their money in Postbank accounts, although Deutsche Bank has been trying for years to migrate Postbank's IT to its own.


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