Deutsche Bank sees quar­terly loss on le­gal, over­haul costs

The Pak Banker - - COMPANIES/BOSS -

Deutsche Bank, Ger­many's big­gest len­der, ex­pects to post a 2.1 bil­lion-euro ($2.3 bil­lion) loss for the fourth quar­ter af­ter set­ting aside more money for le­gal mat­ters and tak­ing a re­struc­tur­ing charge. The stock is at the low­est since 2009.

About 1.2 bil­lion euros were ear­marked for lit­i­ga­tion and 800 mil­lion euros for re­struc­tur­ing and sev­er­ance costs, mainly in the pri­vate and busi­ness clients divi­sion, the Frank­furt-based firm said Wed­nes­day in a state­ment. "Chal­leng­ing mar­ket con­di­tions" also hurt earn­ings at the in­vest­ment bank dur­ing the quar­ter, cut­ting group rev­enue to about 6.6 bil­lion euros, it said. The bank had re­ported 7.8 bil­lion euros of net rev­enue a year ear­lier. Co-Chief Ex­ec­u­tive Of­fi­cer John Cryan has been seek­ing ways to re­store in­vestor con­fi­dence and earn­ings growth bat­tered by costs tied to past mis­con­duct. Un­der his over­haul, Deutsche Bank plans to shrink head­count by 26,000, or a quar­ter of the work­force, by 2018 while plan­ning to sus­pend the div­i­dend to help shore up cap­i­tal buf­fers.

"A real fresh start means even lower stated net prof­its for some time," Daniele Brup­bacher, an an­a­lyst at UBS Group AG in Zurich who has a neu­tral rat­ing on the shares, wrote in a note on Thurs­day. Con­di­tions for the com­pany will prob­a­bly "re­main chal­leng­ing" in the first quar­ter, he wrote. The stock fell as much as 6 per­cent and was down 3.5 per­cent at 17.10 euros as of 9:16 a.m. in Frank­furt, the big­gest de­cline in the 46-mem­ber Stoxx Europe 600 Banks In­dex. Deutsche Bank's 24 per­cent de­cline this year means it's the worst-val­ued global bank.

Full-year rev­enue will be about 33.5 bil­lion euros, lead­ing to a net loss of 6.7 bil­lion euros for the pe­riod, Deutsche Bank said. Those re­sults in­clude pre­vi­ously dis­closed im­pair­ments taken in the third quar­ter, full-year lit­i­ga­tion pro­vi­sions of about 5.2 bil­lion euros and re­struc­tur­ing and sev­er­ance charges of 1 bil­lion euros, the len­der said. "This will be the bank's first full-year loss since 2008, and it is sober­ing," Cryan said in a note to em­ploy­ees posted on the bank's web­site. "We ex­pect the next two years to con­sist of hard work, bur­dened by the costs of re­struc­tur­ing the bank and mak­ing much-needed in­vest­ments. By tak­ing th­ese steps, how­ever, we have the po­ten­tial to trans­form our­selves from a re­struc­tur­ing story into a strong, ef­fi­cient, and well-run in­sti­tu­tion."

Deutsche Bank has racked up more ex­penses for lit­i­ga­tion and fines since the start of 2008 than any other fi­nan­cial firm on the Con­ti­nent, ac­cord­ing to data com­piled by Bloomberg. Its le­gal costs in the fourth quar­ter also ex­ceeded the 750 mil­lion-euro es­ti­mate of Piers Brown, a Mac­quarie Group Ltd. an­a­lyst.

Deutsche Bank has been con­tend­ing with sev­eral reg­u­la­tory probes into al­leged mis­con­duct. The U.S. Depart­ment of Jus­tice and the U.K. Fi­nan­cial Con­duct Au­thor­ity have been look­ing into so-called "mir­ror trades" orig­i­nat­ing from its Moscow of­fice. The Jus­tice Depart­ment also has been ex­am­in­ing what role the bank played in the in­dus­try's ma­nip­u­la­tion of cur­rency ex­change rates and pre­cious me­tals trad­ing. And Deutsche Bank has said it's co­op­er­at­ing with a U.S. probe of mort­gage-backed se­cu­ri­ties.

"We are ex­pect­ing 2016 to be pretty messy for them in terms of re­struc­tur­ing charges," said Shailesh Raikundlia, a Haitong Se­cu­ri­ties an­a­lyst based in the U.K. While ex­pec­ta­tions for fourth-quar­ter re­sults al­ready were low, the size of the lit­i­ga­tion cost was still a sur­prise, he said. "My fore­cast was for them to have only a cou­ple hun­dred mil­lion of lit­i­ga­tion costs." The bank said its com­mon equity Tier 1 ra­tio, a key mea­sure of fi­nan­cial strength, fell to about 11 per­cent at the end of De­cem­ber from 11.5 per­cent three months ear­lier. A change in the reg­u­la­tory cap­i­tal treat­ment of the bank's Abbey Life busi­ness cut the ra­tio by about 10 ba­sis points.

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