Deutsche Bank’s DWS Group Slumps as Lower Fees Weigh on Earnings

Shares of DWS Group slid after the asset-management arm of Deutsche Bank AG said lower fee income weighed on earnings.

(Bloomberg) — Shares of DWS Group slid after the asset-management arm of Deutsche Bank AG said lower fee income weighed on earnings.

The firm said Thursday that adjusted pretax profit for the first quarter fell 19% from the previous three months to €206 million ($228 million), short of the €228 million forecast by analysts tracked by Bloomberg. Adjusted revenue declined about 4%.

The stock declined 3.8% as of 11:08 a.m. in Frankfurt, heading for the biggest drop in six weeks. It plunged as much as 6.2% earlier.

Despite signaling a recovery with a return of net inflows in the quarter, the company said the current market environment has crimped performance and transaction fees, highlighting the challenges Chief Executive Officer Stefan Hoops faces in reviving growth. Hoops, who stepped into the role last year, has vowed to cut costs by trimming headcount and management layers.

Citigroup Inc. said in a note Thursday that quarterly results were weaker than “optimistic” consensus, adding the reiteration of cost targets and strong flows are reassuring.

DWS pulled in a net €5.7 billion in the first quarter, beating the €4.6 billion forecast by analysts tracked by Bloomberg. Assets under management rose to €841 billion, up €19 billion from the prior quarter. The company is seeking to regain investor confidence after suffering almost €20 billion in outflows last year, its biggest on record. 

Hoops plans to channel more investment into DWS’s alternatives business — which houses real estate investments and private credit — and the exchange-traded funds division known as Xtrackers. He has called fixed income a “mature” business where growth is harder to achieve and has made substantial reductions in senior staff at the unit.

“We have taken active action to reduce costs and optimize our business,” Hoops said in a statement.

Read more: Deutsche Bank’s DWS Cuts US Fixed-Income Jobs as CEO Revamps

Alternatives, a sector facing scrutiny as rising borrowing costs hammer property valuations, recorded net outflows of €1.4 billion in the first quarter, down from €2.9 billion in the previous three months, DWS said. 

“Even though the real estate sector has been slower, we actually see a lot of opportunity there,” Chief Financial Officer Claire Peel said in a telephone interview. “We have dry powder to put to work and with real estate valuations coming down, we think it will be a good time in the second part of the year to make investments.”

Cash products were volatile and the segment saw outflows of €3.1 billion in the quarter.

Hoops’s new focus is already yielding some results. Net inflows were attributed to active and passive investment, including Xtrackers and ESG products. 

The asset manager is still being investigated by German regulator BaFin as well as the US Securities and Exchange Commission and the Department of Justice for allegedly misrepresenting its ESG work. DWS has rejected allegations of greenwashing, and management has previously said the firm is working to help conclude the investigations swiftly.

–With assistance from Sam Unsted.

(Updates with shares. An earlier version corrected the inflows to include cash products.)

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.