Deutsche Bank announces surprise loss

The share price has fallen by almost 40 percent since John Cryan took the helm on July 1, promising to overhaul Deutsche, which is struggling to end costly litigation from past scandals and adapt to tighter banking rules.

Andrew Lin of Societe Generale said that at 6.6 billion euros, fourth-quarter revenues were lower than consensus.

Besides not paying dividends in 2015 and 2016, Deutsche said it would cut some 26,000 jobs, around a quarter of the workforce, sell off assets and pull out of 10 countries.

Hoever, UBS analyst Daniele Brupbacher said that although a true fresh start would mean lower net profits for a while he believed that the bank aimed to manage its turnaround without raising fresh capital. Europe’s major indices are broadly on the right side of the line, although they’re generally only up around 0.5%.

After yesterday’s market close, Deutsche Bank reported that it expects a net loss of roughly 6.7 billion euros due to litigation charges, restructuring charges and write-downs, all of which were worsened by challenging market conditions.

“The full-year results include previously disclosed impairments taken in the third quarter of €5.8 billion (US$6.3 billion) of goodwill and intangibles, full-year litigation provisions of approximately €5.2 billion (US$5.7 billion) and restructuring and severance charges of approximately €1.0 billion (US$1.1 billion)”, it said. “By taking these steps, however, we have the potential to transform ourselves from a restructuring story into a strong, efficient, and well-run institution”. In the Q4, the firm’s legal costs surpassed the estimate by a Macquarie Group Ltd. analyst, of 750 million euro.

Deutsche Bank has been contending with several regulatory probes into alleged misconduct. According to Goldman Sachs, the recent huge charges on the bank are mostly linked to the settlements of USA mortgage-backed securities case.

Credit Suisse, which rates the stock at “neutral”, said “the announcement is a reminder of the challenges in terms of P&L the bank is facing over the next 18-24 months, with poor revenue outlook, significant execution risk and uncertainty on the quantum of one-off charges resulting in TNAV/regulatory capital volatility”. The core performance areas of the banks look weak, whereas the trend is expected to continue for upcoming quarters.