What's going on?

After a lot of concern about its financial health, Deutsche Bank surprised investors on Thursday by reporting a profit, rather than a loss, for the first quarter of this year. It doesn�t mean that the bank is out of the woods, but it�s good news and the stock jumped 4% in response.

What does this mean?

Remember, banks have to keep a certain amount of �safe investments� (like cash and government bonds) in reserve in case it�s needed � and Deutsche�s reserves are low relative to peers. The fear is that, once again, Deutsche might have to raise cash by issuing new stock � thus punishing its stock price (because it dilutes current shareholders). However, Thursday�s surprise profit announcement helps because it means that the bank created its own cash (through its profits) that it can then put in its reserves.

Why should I care?

For the stock: There�s a long way to go � but this was an encouraging sign. Deutsche Bank is undergoing massive changes: under its new CEO it�s selling off �bad loans” (i.e. ones that might not get paid back in full) and trying to settle outstanding legal claims. This is expensive – but it�s planned. The idea is to cut costs and deal with major one-off expenses now. If � and it�s a big if � Deutsche can avoid any major missteps in the coming year or so, it might just succeed in righting the ship without having to raise more cash from shareholders.

The bigger picture: European banks might be quietly bottoming. Barclays� investors were pleased with the bank�s turnaround efforts when it reported on Wednesday and now Deutsche has pleased the market. While this could be a false dawn, especially if new storm clouds were to gather for the markets as a whole, it might also be the first signs that major European banks are truly on the mend.