Deutsche Bank in $1.56b loss

Payment in Q4 settled a lawsuit alleging it deceived clients about products

By (Bloomberg)

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Published: Tue 21 Jan 2014, 1:27 PM

Last updated: Fri 3 Apr 2015, 5:15 PM

Deutsche Bank AG, Europe’s biggest investment bank by revenue, reported a surprise fourth-quarter loss, hurt by legal costs and accounting charges. The shares fell as much as 5.3 per cent.

The pretax loss was €1.15 billion ($1.56 billion), on €528 million in litigation-related expenses as well as costs tied to its reorganisation and charges to adjust credit, debt and funding valuations, the Frankfurt-based firm said on Sunday in a statement. The average estimate of six analysts surveyed by Bloomberg was for a €628.5 million pretax profit. The bank announced results 10 days ahead of schedule.

Deutsche Bank paid in the fourth quarter to settle a lawsuit alleging it deceived clients about products linked to US mortgages and a probe into traders colluding to rig benchmark interest rates. The firm is spending money to improve controls, reduce headcount and move staff to cheaper locations as part of a plan to increase profitability.

“It is quite a messy result filled with legal and restructuring costs, which Deutsche would call as one-offs,” said Chad Padowitz, who oversees about $105 million in international equities as chief investment officer of Melbourne- based Wingate Asset Management. “The biggest challenge for Deutsche and its European counterparts is to find avenues for growth.” Deutsche Bank Co-Chief Executive Officers Anshu Jain and Juergen Fitschen said in the statement they are “confident” the bank can reach targets they set for 2015.

Last year “was the second successive year in which we have invested in the bank’s future growth and in further strengthening our controls while addressing legacy issues,” Jain, 51, and Fitschen, 65, said. “We expect 2014 to be a year of further challenges and disciplined implementation.”

Deutsche Bank fell 4.5 per cent to €37.58 as of 9:04am in Frankfurt. The stock has gained 2.6 per cent over the past 12 months, lagging behind a 16 per cent increase in the 44- company Bloomberg Europe Banks and Financial Services Index.

The bank reported a €3.17 billion pretax loss for the fourth quarter of 2012 after writing down the value of businesses that failed to meet its revenue expectations, according to company filings. The firm’s profit in the third quarter of 2013 was almost wiped out after it added €1.2 billion to its reserves for legal expenses, the filings show.

“The management needs to show stability in the loan book, improve trading and investment banking income and produce clean numbers for the stock to gain momentum,” Wingate’s Padowitz said by phone on Monday.

Deutsche Bank’s investment banking and trading unit saw its revenue slide 27 per cent to €2.46 billion in the fourth quarter from the same period in 2012, the statement shows. The decline was led by a 31 per cent drop in debt trading income, while revenue from trading equities increased eight per cent and that from advising clients on acquisitions and stock and bond sales was “stable,” the bank said.

The company said its transaction banking and money management units were profitable in the final three months of last year after posting losses in the fourth quarter of 2012, while pretax profit at its retail banking unit declined 24 per cent.

Moody’s Investors Service lowered its outlook on Deutsche Bank’s credit rating to negative last month, saying the company’s plan to reorient its business and boost profitability has been hampered by rising litigation-related expenses.

Deutsche Bank had €2.3 billion set aside for legal costs at the end of December, down from €4.1 billion three months earlier. The company reached at least three settlements with regulators and clients last month, its filings show.

The bank agreed to pay US financing companies Fannie Mae and Freddie Mac €1.4 billion to settle claims that it didn’t provide adequate disclosure about mortgage-backed securities.

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