Deutsche Bank (DE:DBKGn) Misses Analysts’ Expectations As Client Worries Hit Trading.
Deutsche Bank missed analysts’ estimates in its fourth-quarter earnings release, as the German lender delivered a bigger-than-expected net loss of €1.9 billion ($2.05 billion), compared with a loss of €2.12 billion a year earlier. Nonetheless, Deutsche Bank witnessed better results for the whole 2016 amid major market turmoil for the embattled bank.
CEO John Cryan said that the bank ended the difficult year “with pleasingly strong capital and liquidity ratios.” The lender’s full-year net loss was €1.4 billion, better than its previous net loss of €6.8 billion in 2015.
The quarterly earnings report revealed that charges summed up €5.8 billion in 2016, inclusive of €2.9 billion in just the last quarter alone. Deutsche Bank claimed these were connected to damages of goodwill, the sale of its Abbey life insurance business, reformation and de-risking and litigation expenses which totaled €1.6 billion in the quarter leading to December.
Liquidity reserves perched at €218 billion at year-end, after standing at €200 billion at the end of the third-quarter of 2016. The Frankfurt-based lender’s core capital ratio was at 11.9% at the end of 2016, versus 11.1% in the preceding quarter.
Revenue from debt trading, which is the bank’s biggest source of income, grew 11% from a year earlier to €1.38 billion, falling short of the €1.68 billion average estimate of analysts. Equity trading revenue dropped 23% to €428 million. Analysts had forecasted trading to be flat.
In the last session, the DB stock climbed 2.81% to trade at 20.47. However, in afterhours trading, the stock consequently retreated 3.61% to 19.74.
Shares of Deutsche Bank had endured a wild ride in mid-2016 after the initial request of a $14 billion settlement with the US Department of Justice linked to the selling of residential mortgage-backed securities (RMBS).
This brought up concerns on its capital position, but the lender asserted that it had a “comfortable” cushion at the time. However, this didn't stop a string of price fluctuations in the company's bonds and the cost of insuring its debt.
There were reports of a possible state bailout at the time, but Cryan told reporters last month that he, or any board member, never discussed the idea with the German government.
In the earnings report, Deutsche Bank said that the downscaling or withdrawing of a number of businesses, and “negative news flow around the DOJ RMBS settlement in October 2016 adversely impacted revenues.”
The bank was pressured from aggressive short-selling, particularly from some large hedge funds. It also announced additional job cuts in Germany during that period and it stated it was discharging its British insurance business. Cryan is also slashing trading operations to increase capital levels battered by the misbehavior charges.
Initial concerns about Deutsche Bank actually appeared earlier that year, with investors specifying worries over its exposure to the energy sector and a potential cash crunch.
This January, the official announcement came that the German banking giant would pay $7.2 billion for deceiving investors. The US Justice Department declared that this “agreement represents the single largest RMBS resolution for the conduct of a single entity.”
In the release, Attorney General Loretta E. Lynch stated that the resolution holds the bank liable for the illegal conduct and negligent lending systems that have prompted grave and long-lasting damage to both investors and the American community.
“Deutsche Bank did not merely mislead investors: It contributed directly to an international financial crisis,” Lynch said.