Deutsche Bank Posts 3Q Loss as Restructuring Bites -- 4th Update
October 30 2019 - 9:00AM
Dow Jones News
By Jenny Strasburg
Deutsche Bank AG posted its second straight quarterly loss, as
the troubled lender absorbed costs from its sweeping restructuring
and its key fixed-income business performed poorly.
Shares in the bank were down 6.6% Wednesday, putting the stock
among the weakest performers in the Stoxx Europe 600 index and on
track for its steepest daily fall since December 2018.
Fixed-income trading, considered a core strength of Deutsche
Bank, suffered a 13% revenue decline in the third quarter. The poor
performance was an anomaly among most of its peers. Morgan Stanley,
Barclays PLC and JPMorgan Chase & Co. achieved double-digit
gains in fixed-income trading revenue in the third quarter compared
with a year earlier.
Overall, the bank Wednesday reported a EUR832 million ($924
million) third-quarter net loss, compared with a profit of EUR229
million a year earlier. Analysts had expected a loss of about
EUR772 million, according to FactSet. Revenue fell 15% to EUR5.3
billion, compared with a forecast of EUR5.53 billion.
The net loss largely stemmed from a EUR1 billion pretax loss in
the new division where it has stashed businesses and positions it
is selling or winding down -- what Deutsche Bank calls the Capital
Release Unit, sometimes referred to as a "bad bank."
Under its revamp, which includes about 18,000 planned job cuts,
Deutsche Bank has largely exited from equities trading and pulled
back from other money-losing operations with the aim of focusing on
long-term strengths.
But that has yet to bear fruit. In the reorganized investment
bank, revenue fell 5% in the third quarter.
The fixed-income pain came largely from interest-rate trading
and emerging-markets debt, including losses in Argentina that Chief
Financial Officer James von Moltke declined to quantify on a
conference call. He called the fixed-income results a "mixed
picture" but said the bank is happy with areas such as currencies
trading and predicts the overall business will stabilize.
Banks globally are also suffering from low or negative interest
rates, with that prolonged weight on profit exacerbating Deutsche
Bank's already low-margin retail market in Germany.
Deutsche Bank said its four core business divisions, including
its investment- and corporate-banking units and asset management,
were all profitable. Excluding the so-called bad-bank loss, the
core operations collectively made a pretax profit of EUR353 million
in the quarter.
Chief Executive Christian Sewing said the bank's transformation
is on track, and that the restructuring pain will make Deutsche
Bank leaner and more focused on serving European companies at home
and abroad.
The bank said it is on course to meet its 2019 cost target,
though some analysts pointed out that third-quarter costs were
slightly higher than expected.
Mr. von Moltke said loan growth was consistent with the bank's
strategy, and that it is carefully gauging credit quality. He noted
Deutsche Bank's relatively stable provisions for loan losses,
adding that those provisions are likely to go up, but calling that
an anticipated "normalization."
Executives still expect Deutsche Bank to return to profitability
or at least break even next year, Mr. von Moltke said
Wednesday.
Corporate-bank revenue was up 6%, including an 8% increase in
transaction-banking revenue. Overall private-bank and
asset-management revenue were down 3% and 4%, respectively. DWS,
the asset-management arm, attracted net inflows.
Mr. von Moltke told reporters that nothing in the results since
July has led the bank to consider closing more businesses or
lopping off more products than it already has planned or
announced.
But executives have also acknowledged that investors have heard
many restructuring promises before, only to be disappointed when
cuts failed to bring stability. The bank, which is almost 150 years
old, has had years of senior management turmoil and lost top
bankers. Investors aren't convinced that the latest plan will
succeed, either, analysts say.
--Pietro Lombardi contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
October 30, 2019 08:45 ET (12:45 GMT)
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