Deutsche Bank Q2 loss worse than expected

Troubled German banking giant's €3.15 billion loss compared with a profit of €401 million a year earlier

Deutsche Bank chief executive Christian Sewing. The bank is undergoing a major revamp. Reuters

Deutsche Bank reported a bigger than forecast quarterly loss of €3.15 billion (Dh12.88bn) because of major costs stemming from its efforts to reshape its business.

Deutsche Bank had earlier this month flagged it would lose around €2.8bn in the quarter when it announced a restructuring plan that will see 18,000 jobs go and cost €7.4bn overall.

The second-quarter loss compared with a profit of €401 million a year earlier. The bank's shares dropped 5 per cent in early Frankfurt trading.

Deutsche, Germany's largest lender, is considered one of the most important banks for the global financial system, along with US heavyweights JP Morgan, Bank of America and Citigroup.

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

In a note to employees, Mr 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.

Deutsche's troubles peaked with a $7.2bn (Dh26.44bn) 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'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 6 per cent to €6.2bn. Analysts on average had expected €6.3bn in revenue, according to a consensus forecast posted on the bank's website.

Revenue at Deutsche's cash-cow bond-trading division dropped 4 per cent in the quarter, while equities sales and trading revenue dived 32 per cent.

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

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

The lender will set up a new so-called "bad bank" to wind down unwanted assets, with a value of €74bn of risk-weighted assets.

It was reported on Tuesday that it will take years to shed those unwanted assets, tying up capital that could have generated income of €500m a year.

Some investors have said they doubted these moves would be enough to turn around its flagging fortunes in the face of intense competition and low interest rates.

Others 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.