Deutsche Bank suffers $3.5bn quarterly loss

More than 900 employees have lost their jobs with thousands more to go as Germany’s biggest bank restructures.

Deustsche Bank
Deutsche Bank has been suffering since incurring a $7.2bn fine in the United States in 2017 for its role in the 2008 mortgage crisis [File: Daniel Roland/AFP]

Deutsche Bank reported a bigger-than-forecast quarterly loss of 3.15 billion euros ($3.5bn) because of major costs stemming from efforts to reshape its business.

Earlier this month, the bank had said it would lose around 2.8 billion euros ($3.1bn) in the quarter when it announced a restructuring plan that will see 18,000 jobs go and cost 7.4 billion euros ($8.2bn) overall.

The second-quarter loss compared with a profit of 401 million euros ($457m) a year earlier. The bank’s shares dropped five percent in early Frankfurt trading.

Deutsche Bank, Germany’s largest lender, is considered one of the most important banks for the global financial system, along with United States heavyweights JPMorgan Chase, Bank of America and Citigroup.

But Deutsche Bank has been plagued by losses and scandal, prompting it to embark on one of the biggest overhauls to an investment bank since the aftermath of the financial crisis.

Chief Executive Officer Christian Sewing said on Wednesday that the bank had already taken significant steps in implementing the strategy. More than 900 employees had been given notice or were told they would be made redundant.

In a note to employees, Sewing said that the lender’s underperforming investment bank faced “strong headwinds” in the quarter, including questions about the bank’s future that spooked clients.

“Now we can look ahead with more optimism,” he wrote.

Tale of woe 

Deutsche Bank’s troubles peaked with a $7.2bn US fine in 2017 for its role in the mortgage market crisis in a major blow that caused clients to flee.

A new leadership, with Sewing at the helm since last year, has tried to revive Deutsche Bank’s fortunes, but problems have persisted.

In April, the bank called off nearly six weeks of talks to merge with cross-town rival Commerzbank.

It then embarked on a plan for “tough cutbacks” to its investment bank, representing a major retreat from investment banking for Deutsche Bank, which for years had tried to compete as a major force on Wall Street.

As it reshapes, the bank now expects 2019 revenue to be lower than in 2018. The forecast marks a further scaling down in expectations from previous quarters.

Net revenue in the quarter fell six percent to 6.2 billion euros ($6.9bn). Analysts on average had expected 6.3 billion euros ($7bn) in revenue, according to a consensus forecast posted on the bank’s website.

Revenue at Deutsche Bank’s cash-cow bond-trading division dropped four percent in the quarter, while equities sales and trading revenue dived 32 percent.

The declines underscore the continued weakness at the lender’s investment bank, which saw an 18 percent drop in net revenues during the period.

Details of those plans were announced earlier this month. They include plans to scrap the bank’s global equities business and scale back its investment bank. It also reshuffled management.

The bank will set up a new so-called “bad bank” to wind down unwanted assets, with a value of 74 billion euros ($82.5bn) of risk-weighted assets.

It will take years to shed those unwanted assets, Reuters news agency reported on Tuesday. That will tie up capital that could have generated income of 500 million euros ($557m) a year.

Some investors have told Reuters they doubted these moves would be enough to turn around the bank’s flagging fortunes in the face of intense competition and low interest rates.

Other investors have said they were worried Deutsche Bank would backtrack on a pledge not to tap shareholders for additional cash, particularly in view of its capital constraints.

“I really can’t say that I see the positives in this plan. I remain a bitter curmudgeon,” said Barrington Pitt-Miller, portfolio manager at Janus Henderson Investors.

Source: Reuters

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