Deutsche Bank reports second year in the red

Deutsche Bank reports second year in the red
Like its rivals, Deutsche Bank continues to face headwinds from low interest rates as well as increased regulation and higher capital requirements introduced in the wake of the financial crisis.
PHOTO: Reuters

FRANKFURT - Troubled German banking giant Deutsche Bank on Thursday reported a net loss of 1.4 billion euros (S$2.1 billion) for 2016 as it struggles with the impact of mammoth fines, lower revenues and restructuring costs.

The Frankfurt-based lender was last month forced to slash bonus payments for a quarter of employees.

Like its rivals, Deutsche continues to face headwinds from low interest rates as well as increased regulation and higher capital requirements introduced in the wake of the financial crisis.

But the lender was also battered by a fresh series of fines in 2016 that took deep bites out of its result.

The result is worse than the 200 million euro loss forecast by analysts FactSet, but an improvement on the near-7 billion euro loss recorded in 2015.

Looking beyond the net result, Deutsche saw revenues shrink by 10 per cent in 2016 compared with the previous year, at just over 30 billion euros.

Meanwhile, the bank's underlying, or operating result before interest and taxes was 810 million euros in the red.

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Deutsche's result also continued to be burdened by provisions the bank has set aside to cover credit risks, which grew 45 per cent compared with 2015 to almost 1.4 billion euros.

Among other risks, Deutsche is exposed to the struggling shipping sector, which has been floundering since the 2008 financial crisis.

Chief executive John Cryan has launched a tough restructuring plan to shed 200 branches in Germany and some 9,000 of its roughly 100,000 full-time employees.

"Our results for the year 2016 were heavily impacted by decisive management action taken to improve and modernise the bank, as well as by market turbulence for Deutsche Bank," Cryan said Tuesday in the bank's results statement.

The fourth quarter alone saw a loss of 1.9 billion euros, affected largely by $7.2 billion the bank agreed to pay in fines and compensation in the US over its involvement in the mortgage-backed securities crisis of 2008.

Combined with several smaller legal settlements, the penalty accounted for a 1.6-billion-euro weight on Deutsche's net result.

Read also: Job cuts at Deutsche Bank, ING and Commerzbank​

Deutsche Bank's US settlement was the largest payout any financial institution has so far paid for misconduct relating to the 2008 crash, but well below the initial $14-billion demand from the US Department of Justice.

Adding to its woes, on Tuesday the bank was hit with yet another penalty as New York and British authorities slapped it with nearly $630 million over alleged money laundering in Russia.

But Deutsche had good news to report as well, noting that its capital cushion had grown in the fourth quarter, thanks in part to selling several business units in 2016 - quieting market fears for the bank's resilience.

The bank increased its "hard" capital ratio, a key solvency indicator, to 11.9 per cent, up from 11.1 per cent at the end of 2016's third quarter.

Cryan aims to bring that figure up to at least 12.5 per cent by 2018.

Read also: Deutsche Bank to pay $143.7 million to end US tax fraud case

Deutsche also greeted a 24-per cent reduction in its operating costs, as it had to pay out less for legal charges and depreciations of its assets slowed.

"We proved our resilience in a particularly tough year," CEO Cryan said. "We ended 2016 with pleasingly strong capital and liquidity ratios and we are optimistic after a promising start to the year." The bank aims to increase revenues in 2017, encouraged by the recent brightening of the economic environment, pointing to a good early performance from all of its divisions.

"CEO Cryan brought a turbulent business year to a comforting close," analyst Ingo Frommen of LBBW bank commented. "But investors will have to have continued patience in the current business year" as the restructuring continues.

Deutsche will also continue to face legal tripwires in the months ahead, as it remains tangled in almost 8,000 legal cases worldwide.

Read also: Deutsche Bank drastically cuts 2016 bonuses​

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