Deutsche Bank struggles to rebound, merger rumours hit shares
The bank is pushing ahead with a drawn-out restructuring and cost cuts in an attempt to return to steady profits and put years of legal problems behind it
FRANKFURT _Germany’s struggling Deutsche Bank suffered another loss in the fourth quarter as it faces a raft of issues including a steeply lower share price, merger speculation and continuing legal questions.
The loss of 409 million euros (US$469 million) was an improvement from the year-earlier loss of 2.42 billion euros but it still underwhelmed analysts and investors. Income from trading bonds and currencies slumped 23 per cent in the quarter, when global financial markets were hugely volatile.
Deutsche Bank is pushing ahead with a drawn-out restructuring and cost cuts in an attempt to return to steady profits and put years of legal problems behind it.
CEO Christian Sewing focused on the positives, such as the fact that over the full year 2018, it made a profit for the first time in three years. The net income of 341 million euros ($390 million), up from a loss of 735 million euros in 2017, “shows that Deutsche Bank is on the right track,” he said.
He said the bank’s next goals were to continue cutting costs and to grow profitability “substantially” this year and beyond.
Sewing took over in April from John Cryan, who left amid dissatisfaction with the slow pace of restructuring. The bank has shed employees, dumped risky investments and refocused on Europe and Germany rather than trying to compete with Wall Street investment banks.
So far, investors are not convinced. The bank’s shares have fallen 45 per cent over the past 12 months. Shares fell 4.4 per cent Thursday on speculation that Deutsche Bank might merge with smaller German rival Commerzbank. Shares traded down another 3.6 per cent on Friday.
Sewing, asked about a potential merger, said last week that his first goal was restoring profitability and that a merger was “beyond what I’m currently thinking of.” On Friday, he declined to comment on the merger talk.
Deutsche Bank’s latest legal troubles include inquiries from regulators about transactions related to Danske Bank, whose Estonian branch is suspected of laundering money from the former Soviet Union. The bank says there are “no probes” involving it but that it has received several request for information from regulators and law enforcement agencies around the world and is co-operating with them. It says it processed payments for Danske bank but terminated the relationship in 2015 after identifying suspicious activity by its clients.
Authorities also searched the bank’s headquarters in Frankfurt, Germany, in November as part of an investigation into suspicions bank employees helped set up offshore accounts used to launder money. Prosecutors said the probe emerged from documents leaked from tax havens including the 2016 “Panama Papers.”
Deutsche Bank said it believed it had already given the authorities all relevant information related to the Panama Papers and that it is co-operating fully. It said it saw no need to set aside money to cover any potential losses or fines related to the Danske and Panama Papers issues.
It said it has invested heavily in compliance staff and procedures and has cleared up 19 of 20 major legal matters.
The bank was fined more than $600 million by U.S. and U.K. authorities in January 2017 for allowing customers to transfer $10 billion out of Russia in what regulators said was “highly suggestive of financial crime.”
It has also received an inquiry from the financial services and intelligence committees of the U.S. House of Representatives. Rep. Maxine Waters, a Democrat who took over the finance committee chair after Democrats won the House in November’s election, said in November she wanted to ask Deutsche Bank about its loans to the business ventures of President Donald Trump and seek more information about the Russian money laundering case.
The bank says that it is “engaged in a productive dialogue with those committees” and that it is “committed to providing appropriate information to all authorized investigations.”