What happened

Shares of Deutsche Bank (NYSE:DB) climbed more than 12% on Monday after the German banking giant said it expects to report a first-quarter profit on higher-than-expected revenue. Shares are off nearly 40% since mid-February, and down 77% over the past five years, but the bank's quarter provided investors with some hope that after years of restructuring, the company is finally beginning to stabilize.

So what

On Sunday night, Deutsche Bank said in a statement that it expects to report a first-quarter profit before tax of 206 million euros ($223 million) and net income of 66 million euros. The company said that it expects first-quarter revenue of 6.4 billion euros, significantly above the analyst consensus of 5.7 billion euros.

A stock chart trending higher.

Image source: Getty Images.

The details will not be released until April 29, so it is hard to say exactly what is going on at Deutsche Bank, but the initial results were rare good news for a company that has been floundering for years due to Europe's weak economy and a number of internal scandals. The added revenue and profits were likely thanks to the bank's trading arm, with investors racing to exit poorly performing positions and rebalance portfolios as the COVID-19 pandemic sent stocks plunging.

The bank also said it is on track to hit its full-year cost reduction targets.

Deutsche Bank shares are likely also benefiting from a broader Monday rally in bank stocks as governments in Europe and the United States begin to make plans to reopen economies following the pandemic.

Now what

The bank said its CET1 ratio, a measure of bank solvency, stood at 12.8% at the end of the quarter, which is 240 basis points above the current regulatory requirement. But given the uncertain market conditions, Deutsche Bank warned that those levels could be tough to sustain.

The bank's statement said:

The short-term implications of the COVID-19 pandemic make it difficult for the bank to accurately reflect the timing and the magnitude of changes to its original capital plan. Deutsche Bank's priority is to stand by its clients without compromising on capital strength. It is therefore possible that the bank will fall modestly and temporarily below its previous CET1 target of at least 12.5%. Deutsche Bank remains committed to maintaining a significant buffer above its regulatory requirements at all times.

The bottom line is that while Deutsche Bank is making progress, it is expecting tough times. Investors buying into Monday's rally should be prepared for more uncertain times ahead.