Will Deutsche Bank (DB) Disappoint This Earnings Season?

Deutsche Bank AG (DE:DBKGn) (NYSE:DB) is scheduled to report fourth-quarter 2017 results on Feb 2.

In the last reported quarter, the German banking giant reported net income, driven by cost management and reduction in provisions. However, lower revenues due to trading slump were an undermining factor.

Deutsche Bank is expected to report annual loss consecutively for the third year in 2017, as its results might be impacted by change in tax rates and dismal performance of the investment banking segment. Elevated legal expenses during the final quarter of 2017 also played a role in wiping out profits.

CEO John Cryan of the Germany-based lender has been trying to turnaround the bank through cost-saving measures and focus on investment banking. However, unfavorable trading environment and prevalent legal matters affected his plans and put him on the verge of dismissal.

Factors to Influence Q4 Results

Slump in Trading Activities: During the fourth quarter, trading environment was disappointing as markets experienced low volatility due to several factors. The bank’s revenues are likely to face fixed-income trading slump. Moreover, trading in equities is expected to witness a downtrend due to decreased client activities. Notably, the company expects fixed income, equity and financing revenues to drop 22% from the prior-year period.

Impact of Tax Reform: Deutsche Bank expects the drop in tax rate in U.S. to adversely affect its financials by €1.5 billion due to revaluation of deferred tax assets. Further, the bank estimates the tax overhaul to weaken its capital position. Common Equity Tier 1 ratio is predicted to contract 10 basis points. Per the bank, reduction in tax rates will likely lead to a fall in its effective tax rate to the lower end of the previously expected range of 30-35%.

Legal Issues: Deutsche Bank’s struggle with legal matters continues to impact its bottom line. For the fourth quarter, the bank expects a €0.5-billion hit from legal proceedings.

Currently, Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other foreign banks, Mitsubishi UFJ Financial Group, Inc. (NYSE:MTU) , Itau Unibanco Holding S.A. (NYSE:ITUB) and The Royal Bank of Scotland Group (LON:RBS) plc (NYSE:RBS) are scheduled to report results on Feb 2, Feb 6 and Feb 23, respectively.

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