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Deutsche Bank AG showed early signs of progress in its overhaul, with gains at the investment bank providing comfort to Chief Executive Officer Christian Sewing after restructuring costs caused a bigger loss than analysts had anticipated.
Germany’s largest bank on Thursday reported a fourth-quarter loss of 1.5 billion euros ($1.65 billion), compared with estimates for 1.04 billion euros, reflecting severance and writedowns on everything from software to real estate. While the transaction bank at the heart of the CEO’s new strategy and German retail both saw lower revenue, fixed income trading jumped 31% and asset management saw inflows.
Sewing last year refocused Deutsche Bank on the business of lending to corporations and individuals, only to be forced to lean more on traders again when hopes for higher interest rates didn’t materialize. The trading rebound suggests the investment bank may finally be halting a slide in market share, though the weakness at two key pillars of the CEO’s strategy may complicate the turnaround.
It’s “a mixed set of results,” Citigroup Inc. analysts including Andrew Coombs wrote in a note.
Deutsche Bank rose 1.1% at 11:10 a.m. in Frankfurt trading, paring losses earlier in the day. The stock has gained 17% this year, the best performer among the large European lenders.
The transaction bank, which is central to Sewing’s new focus on serving corporate clients, saw revenue decline about 6% to 942 million euros, while German retail income was 7% lower at 1.21 billion euros. The bank booked about 1.1 billion euros of restructuring costs in the fourth quarter, including transformation charges of 608 million euros as well as restructuring and severance expenses of 473 million euros.
At the investment bank, income from buying and selling debt securities rose 31% from a year earlier, almost twice what analysts polled by the bank had predicted, suggesting the business may be stabilizing after a series of cutbacks in the past years. The trading unit moved to the forefront of Sewing’s restructuring plan late last year as low and negative interest rates hamper efforts to make more money from lending.
Deutsche Bank’s result give a first glimpse of how the large European investment banks did last quarter. UBS Group AG, the first of the European firms to report earnings, saw debt trading increase about 16% last quarter, but it has a much smaller fixed income operation than Deutsche Bank.
Here are some of other highlights:
Core revenue increased 5% to 5.29 billion eurosCET1 ratio unchanged at 13.6%Transaction banking revenue down 6% at 942 million eurosGerman retail revenue down 7% at 1.21 billion euros
Deutsche Bank’s trading rebound couldn’t quite keep up with the five biggest U.S. investment banks, which posted combined gains of more than 60% last quarter. Ram Nayak, who oversees fixed income trading at Deutsche Bank, said that’s because the U.S. results were driven by buying and selling of government bonds, known as rates trading, as well as securitized products, areas Deutsche Bank has cut back or exited.
The German lender said it’s optimistic that the momentum in trading at the end of last year continued into 2020.
“The market conditions, generally speaking, have continued that favorable trend,” Chief Financial Officer James von Moltke said in an interview. “We’re cautious about predicting a quarter when you’re a month in, but we are gratified to see that the markets and our businesses carried their momentum into 2020.”
In asset management, revenue rose 31% from a year earlier, helped by net inflows of 13.2 billion euros in the final quarter.
For the full year, Deutsche Bank reported a shortfall attributable to shareholders of 5.72 billion euros, reflecting the cost of the restructuring. That’s the fifth straight year the bank ended up in the red, with combined losses now amounting to about 15 billion euros. By comparison, JPMorgan Chase & Co. posted a profit of more than $36 billion last year alone, the most of any U.S. bank in history.
To help lower costs, Sewing is trimming the bonus pool at the investment bank by about 30%, people familiar with the matter have said. The bank is also postponing annual pay increases by three months to April 1, and the management board has offered to forfeit some of their bonuses.
For the CEO, the question of compensation is particularly acute this year as he tries to persuade top rainmakers to stay and defending market share in the investment bank.
To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel
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