Deutsche Bank’s shares plunge on warning of record loss
The bank expected to report a net loss of about 6.7 billion as writedowns, litigation charges and restructuring costs were compounded by tough Q4 trading conditions
Frankfurt: Deutsche Bank saw its shares fall by nearly 10% on Thursday after warning the market that it would report a record loss for 2015, adding to the pressure on new chief executive John Cryan as he works to restructure Germany’s biggest bank.
The bank said late on Wednesday it now expected to report a net loss of about €6.7 billion ($7.3 billion) as writedowns, litigation charges and restructuring costs were compounded by tough trading conditions in the fourth quarter.
The announcement renewed analysts’ concerns that the bank might now need to raise more capital to strengthen its finances.
The share price fell by more than 9.5% to a seven- year low in morning trade on Thursday before paring losses to trade down 7.1% at €16.45 by 1134 GMT, when the blue chip Dax index was up 0.6%.
The share price has fallen by nearly 40% since John Cryan took the helm on 1 July, promising to overhaul Deutsche, which is struggling to end costly litigation from past scandals and adapt to tighter banking rules.
After surprising markets in October with a record €6.2 billionloss in the third quarter, Deutsche Bank said on Wednesday it expects its fourth-quarter loss to be about €2.1 billion. Fourth-quarter revenue fell by 15% to €6.6 billion, hit by “challenging market conditions".
The lender booked litigation charges of €1.2 billion in the quarter, alongside costs for restructuring and severance packages of €0.8 billion, mainly related to its retail bank.
Fund manager Ingo Speich at top-20 shareholder Union Investment said the continuous dripfeed of charges was damaging Deutsche Bank’s credibility.
“Has the place been swept clean or is there still more to come? We need clarity on where earnings will come from in the next 12-18 months," he said.
Capital hike
Conditions look set to remain difficult this year, with more extraordinary charges in prospect, analysts said.
“We see further downside risk on litigation - we model another €3.6 billion in 2016 - which is likely to necessitate a capital raise," analysts for Citi said, rating the stock “neutral/high risk" and cutting their price target to €20 from €27.
Analysts at Goldman Sachs, which has a “neutral" investment rating for the shares, said they expected litigation issues to persist for a “multi-year period". But even without such charges, the underlying trends looked weak, they added.
In an attempt to reduce the size of the bank and make it more profitable, Cryan has announced 15,000 job cuts and plans to shed businesses employing a further 20,000 people.
In October he also warned that the bank faces two tough years of dividend cuts, pay restraint and harsh restructuring measures, admitting to grave problems in implementing strategic and cultural change.
However, UBS analyst Daniele Brupbacher said that while a true fresh start would mean lower net profits for a period, he believed the bank intended to manage its turnaround without raising fresh capital.
Deutsche Bank, which is set to report full results for 2015 on 28 January, also said late on Wednesday that it expected to report a common equity capital adequacy ratio of about 11% of risk adjusted assets as of the end of the year. Reuters
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