Deutsche Bank posts surprise loss
The fourth-quarter loss of €2.2 billion ($2.8 billion) included about €1 billion the bank set aside to cover legal proceedings and investigations, including accusations that Deutsche Bank was among institutions that rigged global benchmarks used to set rates on loans. The bank also booked losses in recognition of the diminished value of acquisitions going as far back as its purchase of Bankers Trust in the US in 1998.
While the loss partly reflected problems peculiar to Deutsche Bank, it was a reminder of the weak state of European banking more than four years after the beginning of the financial crisis. Deutsche Bank is considered relatively healthy by European standards.
The loss at Deutsche Bank contrasts with strong earnings recently by competitors like JPMorgan Chase. Still, its shares rose 2.9 per cent in Frankfurt trading as investors apparently concluded that the German bank's relatively new co-chief executives, Jurgen Fitschen and Anshu Jain, were front-loading the bad news. Investors were also rewarding the bank's efforts to increase the size of the reserves it holds as insurance against losses.
The two men took over the reins less than seven months ago and have declared their intention to deal more severely with the legacy of the financial crisis.
Deutsche Bank said revenue in the fourth quarter rose 14 per cent to €7.9 billion, from the period a year earlier. The bank warned in December that it would incur major charges in the quarter, but most analysts had not expected the loss to be so big. Before taxes, the loss was €2.6 billion.
For the full year, Deutsche Bank reported a net profit of €665 million after subtracting €3.5 billion related to legal problems or diminished value of assets.
The bank's problems are far from over. Deutsche Bank continues to cope with the consequences of behaviour by some employees, including a tax evasion inquiry that led to a police raid on company headquarters in December. Executives acknowledged the bank could face additional lawsuits related to its sale of securities tied to the US subprime mortgage market.
The New York Times
Frequently Asked Questions about this Article…
Deutsche Bank posted a surprise quarterly net loss because new management booked large charges to clear up past problems. The fourth-quarter loss of €2.2 billion (about US$3 billion) included roughly €1 billion set aside for legal proceedings and investigations and losses recognizing the diminished value of past acquisitions.
For the fourth quarter Deutsche Bank reported a net loss of €2.2 billion (around US$3 billion) and a before-tax loss of €2.6 billion. For the full year the bank reported a net profit of €665 million after subtracting about €3.5 billion related to legal problems or reduced asset values.
The bank set aside about €1 billion to cover legal proceedings and investigations, including accusations that it was among institutions that rigged global benchmarks. Executives also noted possible additional lawsuits tied to the sale of securities linked to the US subprime mortgage market, and a tax evasion inquiry that led to a police raid on the bank's headquarters in December.
No — Deutsche Bank shares actually rose 2.9% in Frankfurt trading. Investors appeared to view the charge as new management "front-loading" bad news and appreciated the bank increasing reserves as protection against future losses.
The bank's relatively new co-chief executives, Jürgen Fitschen and Anshu Jain, took over less than seven months before the report. They have said they intend to confront the legacy issues from the financial crisis more forcefully, which included building larger legal and asset-value reserves.
Revenue in the fourth quarter rose 14% year-on-year to €7.9 billion, showing that underlying business activity increased even as the bank took big one-off charges related to legal matters and legacy asset write-downs.
The loss is a reminder of ongoing weakness and legacy risks in parts of European banking more than four years after the financial crisis. While Deutsche Bank is considered relatively healthy by European standards, the size of the charges highlights legal and legacy exposures investors should watch when evaluating European bank shares.
The article notes a contrast: Deutsche Bank posted a surprise loss while competitors such as JPMorgan Chase reported strong earnings. That contrast underscores differing regional conditions and the impact of legacy legal and acquisition-related charges on Deutsche Bank's results.
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