Deutsche Bank Securities Unit Reports Loss on Revenue Slump

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Deutsche Bank AG reported a loss at its investment bank, Europe’s largest, in the fourth quarter as revenue from each of its businesses fell, with co-Chief Executive Officer John Cryan seeking to restore profit growth.

The loss of 1.15 billion euros ($1.25 billion) in the period compares with a pretax profit of 323 million euros a year earlier, the company said in a statement from Frankfurt on Thursday. Revenue at the corporate banking and securities unit slumped 30 percent to 2.1 billion euros, with a negative return on equity.

Cryan, 55, who took over as co-chief executive officer from Anshu Jain in July, is shrinking the debt trading empire built by his predecessor as part of a pledge to bolster capital levels and boost profitability, hurt by costs tied to past misconduct. His task has become even harder as the market upheaval that hit trading at the end of last year spilled into 2016 amid concerns about cooling growth across emerging markets and a slump in oil prices.

“All the uncertainty over oil, interest rates and growth has investors standing on the sidelines and not tapping Deutsche Bank for services,” said Michael Seufert, an analyst at Norddeutsche Landesbank who recommends investors sell the stock. “The big question for shareholders now is where’s the positive outlook and how can the bank earn money?”

Deutsche Bank shares have dropped about 24 percent this year.

Deutsche Bank posted a net loss of 6.8 billion euros for 2015, its first annual loss since 2008, as it wrote down the value of the investment banking and consumer banking units and set aside money for litigation.

At the investment bank, which generates most of the revenue, legal costs rose to 335 million euros in the fourth quarter from 42 million euros a year earlier. Debt and currency trading, the division’s biggest source of income, declined 16 percent to 947 million euros.

Elsewhere, the division that caters to consumers as well as small and medium-sized companies posted a pretax loss of 675 million euros in the fourth quarter after an 8 million-euro profit before tax in the year earlier period following restructuring charges.

Transaction banking saw pretax profit surge 40 percent to 347 million euros in that period, while asset and wealth management posted a 23 percent decline in pretax profit to 274 million euros.

‘Challenging Periods’

“In fairness to John Cryan, he signaled that re-orientating the investment bank will have a revenue impact so we shouldn’t be too surprised about that,” said Neil Smith, an analyst at Bankhaus Lampe with a buy recommendation on the shares.

Deutsche Bank said 2016 will be a “peak restructuring year,” taking related charges of about 1 billion euros, with litigation remaining a “burden.” The company will “continue to work hard to clear up our legacy issues,” Cryan said in the statement.

“Restructuring work and investment in our platform will continue throughout the year,” he said in the statement. “We know that periods of restructuring can be challenging. However, I’m confident that by continuing to implement our strategy in a disciplined manner, we can and will transform Deutsche Bank into a stronger, more efficient and better run institution.”

 

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