Germany’s biggest lender has posted a historic loss as the bank continues to be bogged down by a string of legal charges. The report comes as Deutsche unveils a huge overhaul of its business.
Deutsche Bank on Thursday booked its biggest third-quarter net loss ever as the German lending giant’s bottom line was weighed down by massive litigation costs and write-downs.
“In the third quarter 2015 we reported a record net loss – a highly disappointing result that was largely driven by items we had already flagged earlier in October,” co-CEO John Cryan said in a statement.
Despite the disappointment, the loss comes as no surprise, and was actually below expectations. In early October, Deutsche had warned investors it expected a 6.2 billion-euro ($7 billion) net loss in the third quarter, driven, in part, by a slew of legal charges. The investment and retail bank is currently embroiled in around 6,000 different litigation cases. In April, it agreed to pay a record $2.5 billion (2.2 billion euros) as part of a settlement over allegations that it had helped rig key interest rate benchmark, including the London Interbank Offered Rate (LIBOR).
Litigation costs accounted for one-fifth, or 1.2 billion euros, of Deutsche’s third-quarter loss, while write-downs on its stake in Chinese group Hua Xia bank set the lender back 649 million euros.
On top of this,” our revenues were impacted by challenging market conditions with persistent low interest rates and uncertainty around the (US) Federal Reserve’s interest rate policy,” Cryan said.
The report comes on the same day as Deutsche reveals a major overhaul of its banking structure, dubbed “Strategy 2020.”
Ahead of Thursday’s big announcement, the Management Board unveiled a plan that’s likely to ruffle some shareholders’ feathers, saying it would withhold dividends in 2015 and 2016. It would be the first time since Germany’s postwar reconstruction that the lender has not paid dividends, including during the 2008-2009 financial crisis. The Management Board defended the move as a necessary measure to cut costs and meet the 2020 targets. The lender, however, did say it hoped to resume paying dividends in 2017.
The new strategy also aims to boost its ability to withstand financial shocks by targeting a common equity tier 1 (CET1) ratio of 12.5 percent by 2018, up from last quarter’s 11.4 percent. The CET1 figure is one of the key indicators the European Banking Authority relies on for its so-called bank stress test to assess the resilience of financial institutions in the EU.
On Thursday, Cryan said CET1 rose slightly in the quarter to 11.5 percent, “partly reflecting lower risk weighted assets and leverage exposures, and our decision not to recommend a dividend for the year.”
pad/hg (AFP, dpa, Reuters)