Deutsche Bank's profits nosedived from €800 million to just €20 million

• Ben Moshinsky
 

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Deutsche Bank Chief Executive Cryan addresses a news conference in Frankfurt Thomson Reuters

Deutsche Bank, Germany's largest lender, posted second quarter net income of €20 million (£17 million), down from more than €800 million (£669 million) a year earlier.

Pre-tax profit declined 67% to €408 million (£341.2 million) in the period April to June.

The investment bank's trading, markets, and corporate finance revenue all dropped while restructuring costs, including €67 million (£56 million) in severance payouts, increased.

Overall, revenue fell by 20% compared to the second quarter last year, hitting €7.4 billion (£6.1 billion).

Despite the profit hit, Deutsche Bank outperformed expectations. Analysts surveyed byBloomberg estimated a loss of €22 million (£18.4 million).

Deutsche Bank has tried to simplify its business, cut costs and reduce litigation and fines from poor conduct, as part of a plan started in October last year by new CEO John Cryan.

The firm has scaled back on businesses that use a lot of regulatory capital, such as trading and markets, to free up resources.

Cryan said in a statement: "While our results show that we are undergoing a sustained restructuring, we are satisfied with the progress we are making."

"We have continued to de-risk our balance sheet, to invest in our processes and to modernise our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring," Cryan said.

Cryan inherited a bank that lacked capital reserves and was hampered by high costs of fines and litigation but shares have struggled in the nine months since the CEO's kicked off his ambitious turnaround plan.

Here's the chart:Investing

Deutsche Bank's credit rating was lowered by Moody's earlier this year, citing difficulties with the lender's plan to stabilise itself in a world of low growth and low interest rates.

The bank's credit rating for senior unsecured debt, which is not backed by collateral but is ahead of junior debt in the queue for assets in the event of bankruptcy, was lowered to two notches above junk.

NOW WATCH: Billionaire private-equity CEO David Rubenstein says Britain will almost certainly go into a recession and the US may follow

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Apple crushed expectations across the board, and the stock is way up

• Kif Leswing
 

• 17h
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Apple CEO Tim Cook.Getty Images, Justin Sullivan

Apple  $103.27

AAPL

+/-+1.39

%+1.40

Disclaimer

Apple stock jumped by as much as 6.5% on Tuesday after the company reported earnings that were higher than what Wall Street was expecting.

Revenue was in-line with Apple's guidance, but that still left it down 14.5% from the same period last year.

Apple's most surprising beat was in iPads; it sold nearly 1 million more units than what analysts had predicted.

But its gross margin missed after its low-cost $400 iPhone proved more popular than had been expected.

CEO Tim Cook told CNBC that the company's services business — including Apple Music, the App Store, and iCloud — would be the "size of a Fortune 100 company by next year." While services revenue was slightly down to $5.97 billion from the previous quarter, it was up 19% year-over-year.

Here is what Apple reported versus analyst expectations:

• Q3 EPS (GAAP): $1.42, down 23.2% year-over-year versus expectations of $1.36.
• Q3 revenue: $42.4 billion, down 14.5% year-over-year versus expectations of $42.059 billion.
• Gross margin: 38% versus expectations of 37.9%.
• iPhone unit sales: 40.4 million, down 14.9% year-over-year versus 39.9 million.
• iPhone ASP: $595.26 versus expectations of $606.
• iPad unit sales: 9.95 million iPads, down 8.7% year-over-year versus expectations of 9.1 million.
• Mac unit sales: 4.25 million, down 11.5% year-over-year versus expectations of 4.4 million.
• Q4 revenue guidance: $45.5 billion to $47.5 billion, slightly higher than analyst estimates of $45.6 billion, averaged from projections ranging from $42.4 billion to $49.4 billion.

Live blog

6:02: And we're done here. Thanks for tuning in!

6:01: "Think of tvOS as building the foundation of what could be a broader business over time," says Tim Cook. "Shouldn't look at what there's today and we've done what we want to do. We've built a foundation we can build on."

5:55: Cook on R&D growth: "The balance of the company we're managing more flattish, the products that are in R&D, there is a quite of bit of investment, for products and services that are not currently shipping or derivations of what is currently shipping. You can look at the growth rate and conclude there's a lot of stuff we're doing beyond the current products."

5:54: I think AR will be huge, says Cook. We are high on AR. Most important is our products work well with developers.

5:49: "In terms of AR and the Pokeman [sic] phenomenon, it's incredible what's happened there," says Cook.

5:46: "The thing that Apple does best, is provide a killer user experience," Cook said.

5:45: "iPhone demand is made up of upgraders, switchers, and new to smartphone. So if you take it in the reverse order, the penetration around the world was 42%, so there's quite a bit of room there," Cook said.

5:40: "I really like what I see with the iPhone SE ... likely convincing some people to upgrade," says Cook.

5:39: "I see a switcher rate that is the highest ever," says Cook. "I see the iPhone becoming more important to people's lives."

5:37: "I don't want to talk about phones that aren't announced" - Tim Cook

5:34: "To have a great platform you need to have a healthy ecosystem," says Cook. "Developers are making a lot more money writing for iOS than for ... other apps," says Cook. "We have more than 2 million apps in the App Store."

5:28: ON DIDI CHUXING: "It was an unusual investment, we don't have a long history of doing a lot of these, we invested in ARM in the early days, we invested in Akamai, so it wasn't the first. One great financial investment, some strategic things the companies can do together over time. We think we'll learn a lot about the business and the Chinese market." - Tim Cook.

5:27: A question about the Didi Chuxing investment. "We obviously invest a ton of capital in our business itself, and that's the main source of capital [expenditure]. We are constantly looking on the outside for great talent and intellectual property."

5:27: On to analyst questions.

5:24: Maestri explains that Apple's legendary cash pile is actually shrinking, thanks to share repurchases. It's down $1.4 billion from last quarter.

5:21: Maestri making excuses for slow Mac sales. Maybe it's because they haven't released a new one in a while.

5:20: Services are up from 8% of revenue to 11% of revenue, says Maestri.

5:17: Now CFO Luca Maestri is speaking. He's going over the numbers. "We expect average selling price to improve this quarter," he says.

5:16: Apple has a great pipeline of products and "I am very bullish about our long-term opportunity," Cook says.

5:15: "[Apple Pay] adoption outside the US has been explosive."

5:14: Apple Pay active users are up 450% year-over-year, according to Cook.

5:13: Cook is now talking about an "enhanced AI experience" on Apple products. Apple has been criticized by analysts for falling behind in artificial intelligence and machine learning. "Deep learning in our products even allows our products to ... improve their own battery lives."

5:12: Now Cook is talking about iOS 10 — which comes out this fall. Here's a solid preview.

5:10: "India is now one of our fastest growing markets," says Cook. "iPhone sales in India were up 51% year-on-year."

5:09: Our underlying business in China is stronger than our results imply, says Cook.

5:08: "I visited China and India, and I am very optimistic about the opportunities in greater China," Cook says. However, he says, "we faced some challenges in greater China as the economic environment has slowed down."

5:07: Over half of iPad Pro buyers expect to use them for work, says Cook.

5:06: Cook talking iPhone switchers and Apple's services business.

5:05: Cook says the iPhone SE strategy is working. "We added millions of first-time iPhone buyers in the first quarter."

5:05: "Demand outstripped supply" on iPhone SE, and Apple brought on "additional capacity," according to Cook.

5:05: "iPhone sell-through was down only 8% year-over year," says Cook.

5:02: And we're off. We're starting with Apple CEO Tim Cook, then CFO Luca Maestri.

4:53: If there's one way that Apple's purchase of Beats changed the company, it's that Apple now has way cooler hold music.

Data

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SEE ALSO: 'There probably won't be too many positives': Here's what Wall Street expects from Apple earnings

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BRITAIN BEATS — UK GDP comes in better than expectations

• Will Martin
 

• 6h
• 368
 
• 1

Reuters / Jason Cairnduff

UK GDP grew by 0.6% in the second quarter of 2016, according to figures released by the Office for National Statistics on Wednesday, beating forecast growth of just 0.5%.

On an annual basis, GDP rose by 2.2%, again beating the 2.1% growth predicted.

The numbers released on Wednesday are a preliminary reading produced with roughly 50% of all data collected, so could easily be revised upwards or downwards when the full information is provided, but the numbers suggest that the British economy actually accelerated ahead of the country's European Union referendum in June.

Several pre-referendum indicators suggested that activity in the UK was slowing a little in anticipation of the vote, but the ONS' new figures suggest that this was not the case.

The data will also provide a boost for those who believe that the economic impact of the EU referendum result — a vote for Brexit — might not be quite as substantial as has been widely predicted. Since the result, virtually every economic survey has pointed to a sharp slowdown in the economy, with last Friday's Markit PMIs painting a particularly bleak picture. Many organisations are also predicting a recession, but Wednesday's numbers are encouraging.

The 0.6% growth was driven largely by strong quarterly performances by the production and services sectors, while agriculture and construction provided a small drag on the numbers.ONS

This breakdown of growth leads Pantheon Macroeconomics' chief UK economist Samuel Tombs to warn against getting too excited about the data (emphasis ours):

"The second quarter’s GDP figure is not as robust as it seems at face value and it won’t hold back the MPC from cutting interest rates next week. The acceleration between Q1 and Q2 entirely reflected a pick-up in quarter-on-quarter growth in industrial production to 2.1% in Q2 from -0.2% in Q1. Although manufacturing output rose by 1.8%, the strong growth in IP also reflected unsustainable support from a 4.7% surge in energy supply following an unusually mild winter. The rest of the economy slowed. Construction output fell by 0.4%, slightly worse than Q1’s 0.3% drop, and growth in services output slowed to 0.5% in Q2 from 0.6% in Q1."

Here's Pantheon's chart:Pantheon Macroeconomics

And here's how the quarter looks as part of the longer term trend, courtesy of the ONS:ONS

Commenting on the numbers, newly appointed Chancellor of the Exchequer Philip Hammond said:

"Today’s GDP figures show that the fundamentals of the British economy are strong. In the second quarter of this year, our economy grew by 0.6 per cent – faster than was expected. Indeed we saw the strongest quarterly rise in production for nearly twenty years, so it is clear we enter our negotiations to leave the EU from a position of economic strength.

"Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and along with the Bank of England, this government will take whatever action is necessary to support our economy and maintain business and consumer confidence."

NOW WATCH: We tested an economic theory by trying to buy people's lottery tickets for much more than they paid

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Japan is going to spend $266 billion to try to jump-start its economy

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Japanese Prime Minister Shinzo Abe at the Asia-Europe Meeting summit just outside Ulaanbaatar, Mongolia, on July 15.REUTERS/Bazarsukh Rentsendorj

TOKYO — Japan launched an economic stimulus package worth more than 28 trillion yen ($266 billion) Wednesday, days before the central bank is expected to unveil its own growth-boosting measures.

Prime Minister Shinzo Abe announced the program in a speech in southwestern Japan, giving few details except to say it would include about 13 trillion yen in fiscal measures including government spending.

More highlights of the package were expected next week when the cabinet is due to approve the measures announced in the city of Fukuoka.

Abe promised a stimulus package — which earlier reports had said could be worth 10 trillion to 30 trillion yen — after Britain's vote last month to quit the European Union sparked a rally in the yen that threatened profits at Japan Inc.

Traders tend to buy Japan's currency as a safe bet in times of turmoil or uncertainty. But it makes the country's exporters less competitive overseas and takes a bite out of their bottom line.

On currency markets, the dollar jumped as high as 106.54 yen from about 105.01 yen in the morning, after Fuji Television flagged the stimulus on Wednesday afternoon.

It was sitting at 105.54 yen after the announcement.

The news comes as speculation mounts that the Bank of Japan will further ease monetary policy after a two-day meeting Friday.

Since taking the helm more than three years ago, Haruhiko Kuroda, the Bank of Japan, has overseen a massive asset-buying plan that now stands at an unprecedented 80 trillion yen annually.

The scheme is a cornerstone of Abe's push to beat years of deflation and kickstart growth, dubbed Abenomics.

But while Kuroda has insisted that the central bank's target to reach 2% inflation is realistic, the BOJ has been forced to push back its timeline for meeting that goal several times.

Koji Sasahara/AP

Wobbly growth

The government and central bank have come under increasing pressure to do more for the economy as a string of poor readings and sagging business confidence highlight a long-running weakness in Japan's economy.

On Friday, Japan is due to release monthly economic data that could factor into the BOJ's decision on whether to move.

The last figures painted a worrying picture, with spending by Japanese households falling while inflation dropped for a third straight month.

While the labor market remains tight, there are growing concerns about second-quarter economic growth. Japan dodged a recession in the first three months of the year.

The Bank of Japan's most recent Tankan survey showed that confidence among small firms and nonmanufacturers worsened during the second quarter of the year.

The report is the most comprehensive indicator of how Japan Inc. is faring.

Abe's package comes about two weeks after he claimed victory for his ruling coalition in parliamentary elections, despite lukewarm public support for his economic policies.

The blueprint — a mix of massive monetary easing, government spending, and red-tape slashing — had brought the yen down from record highs and made Japan's exports more competitive but has not been enough to deliver consistent growth.

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More: AFP Japan Stimulus Shinzo Abe

'The ducks have aligned,' but the Fed will probably miss its biggest opportunity of the year

• Akin Oyedele
 

• 20h
• 5,839
 
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Federal Reserve Chair Janet Yellen at a roundtable discussion at the West Philadelphia Skills Initiative in Philadelphia, on June 6.AP/Matt Rourke

Stand by for the Federal Reserve to do nothing.

At 2 p.m. ET on Wednesday, the Federal Open Market Committee will announce its latest policy decision — the outcome of its two-day meeting in Washington.

It is widely expected not to raise interest rates.

But Alan Ruskin, the head of G10 FX strategy at Deutsche Bank, has argued in a note that the Fed "could not have wished for a more benign financial market, international event, and data backdrop than they have right now."

"By the standards set when the Fed first tightened the Fed should be tightening in July," Ruskin said, noting that several measures of financial conditions, including the stock market and bonds, were calmer than they were in December. In this sense, he said, "the ducks have aligned."

Economic data points have been surprising to the upside. Deutsche Bank

But at best, the Fed is expected to tweak the top of its statement, which contains its broad assessment of the economy, to acknowledge the strong jobs report in June and the expected improvement in second-quarter gross domestic product.

The Fed could also note that survey-based measures of inflation expectations have improved a bit.

Ruskin said that by September markets may be fretting about the Italian referendum in October or the US elections in November.

The key question for the FOMC, Ruskin said, is what happens when interest-rate policy becomes static because its inflation target — more the drag on it — is dominated by international factors.

But there are compelling reasons for the Fed to sit still, for now, as markets expect.

For one, there's no press conference on Wednesday, and markets typically do not expect the Fed to make big decisions when Yellen won't have a chance to immediately address them.

Also, RBC Capital Markets' Tom Porcelli wrote in a note, the British vote to exit the European Union "has clearly changed the Fed calculus when it comes to gauging the potential for financial market volatility — i.e. it has increased 'uncertainty' as many Fed members have highlighted in post-Brexit speeches."

It's possible that the Fed does not provide any meaningful clues on the next rate hike, though it may not rule out one in September.

In all, the Fed statement is expected to be a snooze. And so, Bank of America Merrill Lynch's Ethan Harris is already looking ahead to the next Fed release.

"Perhaps the biggest risk to market pricing will come not from this week's statement, but from the minutes in three weeks' time," Harris and his team said in a note on Tuesday.

"Recall the sharp market reaction when the April minutes revealed significant support on the FOMC for a possible June rate hike," Harris said. "There is the potential for a similarly surprising amount of FOMC interest in a September hike this time around."

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