What's going on?

Deutsche Bank reported its second-quarter results on Wednesday � and it wasn�t pretty (its stock sold off almost 4%). Revenue fell 20% versus a year ago, its investment bank sharply underperformed its American competitors and its CEO said it might have to increase its cost-cutting program.

What does this mean?

Deutsche Bank said low interest rates were partially to blame (banks can�t charge much for loans when interest rates are so low). Its CEO said that the bank would be forced to cut even more costs (it�s undergoing a huge restructuring program already).


But the problem with cost cuts is that they tend to affect the company�s performance, e.g. laying off investment bankers leads to Deutsche Bank working on fewer deals � and therefore making less money in the future. Its aggressive cost cutting already seems to be having an impact on its profit: Deutsche Bank�s stock and bond trading divisions severely underperformed their American competitors last quarter (remember, these big banks compete with each other globally, not just in their own regions).

Why should I care?

The bigger picture: Low/negative interest rates are supposed to boost lending � but hurting banks� profits has the opposite effect.
The European Central Bank has pushed interest rates down to super-low levels. In theory, this encourages people and businesses to borrow and, in turn, spend money � which boosts the economy. But it also makes it more difficult for banks to make money (because they can�t charge as much for loans). Banks that have more money available (e.g. due to making profit) are probably going to lend out more money � and so the benefit of low/negative interest rates is mitigated by its negative impact on banks’ profits (to what extent is debatable).


For you personally: Banking fees are probably going up.

Deutsche Bank�s CEO said that European banks were likely to raise fees (e.g. they could raise the �arrangement� fee that one pays when taking out a mortgage) in an attempt to protect their profits in the face of low interest rates. So you might, to some extent, be sharing the pain with banks…