Deutsche Bank posts big loss as overhaul bites
'We’re very confident we can finance our transformation with our own resources'
FRANKFURT—Deutsche Bank swung to a €5.3 billion ($5.8 billion) loss in 2019, highlighting the size of its challenge in making itself leaner and more profitable through a sweeping overhaul.
Despite the steep loss, the bank reported better-than-expected capital levels, easing concerns it would eventually have to sell more shares to fund its restructuring. Shares in the bank fell more than 2 percent in early trading in Frankfurt before recovering.
Like several European banks, Deutsche Bank is struggling to make money while interest rates remain low or below zero. Adding to its woes, its big investment-banking business—long its dominant revenue engine—is also suffering from stiff competition from U.S. peers.
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Last year, after a failed attempt to merge with smaller German rival Commerzbank AG , Deutsche Bank moved to shrink and reorganize its global investment bank and put more emphasis on serving European companies and retail-banking customers. It also said it would cut 18,000 jobs by 2022 and slash costs.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| DB | DEUTSCHE BANK AG | 16.20 | -0.59 | -3.51% |
Costs associated with the revamp weighed heavily on its results last year, the lender said Thursday. Its annual net loss, compared with a profit of €341 million a year earlier, was bigger than an average estimate of €4.86 billion, according to a consensus of analysts compiled by the bank.
Annual revenue totaled €23.17 billion, down 8 percent from a year earlier but slightly better than expected. Deutsche Bank said that excluding the division where it has stashed businesses and positions it is selling or winding down, it reported a pretax profit of €543 million.
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The bank indicated it is over the worst of its turnaround effort, saying 70 percent of the associated costs were taken in 2019. It is also getting rid of its unwanted assets faster than expected, which is helping keep its capital level stable. It reported a core Tier 1 ratio, a key measure of a bank’s balance-sheet strength, of 13.6 percent, higher than expected.
“With our strong capital position...we’re very confident we can finance our transformation with our own resources and return to growth,” Chief Executive Christian Sewing said in a statement, signaling again the bank doesn’t need to sell shares to fund the restructuring.
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“Progress on capital is welcome and has materially reduced the execution risk,” RBC Capital Markets said in a note. “However, the challenge remains to improve returns, which could take time.”
But as a sign of the challenges Deutsche Bank faces in relying more on its corporate and private bank and retail businesses, those divisions reported falls in fourth-quarter revenue of 5 percent and 4 percent, respectively. In a bright spot, its fixed-income business, considered a core strength of the bank, posted a 31 percent rise in revenue in the fourth quarter, driving overall investment banking revenue up 13 percent.
Total revenue in the quarter was down 4 percent from a year earlier at €5.35 billion. Deutsche Bank reported its third consecutive quarterly loss, totaling €1.48 billion.
Tapping shareholders for more capital has become prohibitive for European banks given the sector’s relatively weak returns for investors. As fears of a capital increase at Deutsche Bank dissipated, its shares have recovered some ground this year.
But big hurdles remain, including whether the bank can meet its revenue targets and make money in Germany and Europe, where low interest rates have made the business of lending challenging.
Concerns over profitability have forced the European Central Bank, which supervises Deutsche Bank and other large banks in the region, to encourage mergers to strengthen the system.