DEUTSCHE Bank posted its first loss in four years in the second quarter after setting aside 1.3 billion euros (S$1.9 billion) as a provision for a protracted investor lawsuit over its Postbank acquisition.
The loss at Germany’s largest lender broke a profit streak after 15 consecutive quarters in the black, in a setback for the bank’s turnaround under CEO Christian Sewing.
The bank’s net loss attributable to shareholders was 143 million euros in the quarter. That compares with a profit of 763 million euros a year earlier, and was better than analyst expectations for a loss of around 280 million euros.
The bank also increased its forecast for provisions for credit losses for the full year, and its finance chief told Bloomberg TV the bank would not conduct a second share buyback this year.
Deutsche executives nevertheless strove to explain the quarter was an aberration and that it was on track to meet its targets.
The loss was “solely due to the legal provision”, Sewing wrote in a memo to employees.
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He said “our operating strength is evident” and that the bank would meet its targets.
The bank’s quarterly earnings are part of a flurry of reports from Europe’s biggest banks, as investors eye whether gains from higher interest rates have run out of steam and if political ructions in France, Britain and the US are weighing on sentiment.
The legal issue at Deutsche centres around the no-frills Postbank, with its millions of clients and roots in the country’s postal system, which Deutsche began acquiring during the 2008 global financial crisis.
With the purchase, Deutsche was seeking to broaden its reach in Germany with a steady income stream after years of rapid international expansion.
Instead, Postbank has evolved into a source of consumer complaints, regulatory scrutiny, labour strife and the long-running and costly lawsuits.
The suits, which claim Deutsche underpaid for the Postbank purchase, have been bouncing around courts for years.
Deutsche said in April that it still strongly disputed the claims but that it had decided to post a provision for the cases of 1.3 billion euros. It was a surprise move that took investors off guard and resulted in a 9 per cent drop in shares.
The results come as Deutsche navigates a weak economy in its home market, which the nation’s central bank this week warned was growing more slowly than it had expected and that hopes of an imminent industrial rebound had been dampened.
Regulators, meanwhile, have warned 2024 will be less rosy for German bank profits as a property crisis weighs and loans go bad.
The bank is also trying to cut costs to meet its 2025 targets, which most analysts believe will be hard to reach.
Deutsche’s biggest breadwinner in the second quarter was its sprawling investment bank, which has operations spanning from Sydney to New York. Revenues rose 10 per cent from a year earlier, in line with expectations, though it was behind a 12 per cent rise reported by France’s BNP Paribas on Wednesday (Jul 24) and jumps of more than 30 per cent at some big US competitors.
In contrast with the investment bank, revenues at Deutsche’s retail and corporate banking divisions fell.
As part of a 2019 revamp, Deutsche had tried to rebalance the lender so that the volatile investment bank – once its problem child – carried less weight. But it is forecast to remain the largest division in the coming years.
Within the investment bank, origination and advisory was a pillar of strength in the quarter, with revenue rising 88 per cent, compared with expectations of a 66 per cent increase and outpacing gains at big US competitors.
Revenue for fixed-income and currency trading, one of the bank’s largest businesses, dropped 3 per cent, slightly worse than expectations for a nearly 2 per cent decline. They were up 5 per cent for US banks, according to Jefferies. REUTERS
