Germany's biggest lender has posted a historic loss as the bank continues to be bogged down by a string of legal charges. The report comes as Deutsche unveils a huge overhaul of its business.
Deutsche Bank on Thursday announced plans to axe 9,000 jobs and pull out of nearly a dozen countries as the German lending giant unveiled its biggest overhaul in years, following a record loss in the third quarter.
The move is part of new co-chief John Cryan' drive to create a leaner and cleaner bank after months of being weighed down by scandals and poor performance. Teasing the reorganization on Sunday, Cryan said the so-called "Strategy 2020" aimed "to create a bank that's better-controlled, more cost-efficient and more strongly focused."
The planned shake-up has largely been welcomed by shareholders and regulators, who have long been calling for fundamental changes to Germany's biggest bank. Until now, however, they had precious few details to latch on to. But on Thursday, as he stepped before the press for the first time of his four-month tenure, Cryan finally got more specific.
In addition to the 9,000 layoffs - 4,000 of which will be in Germany - the bank announced plans to reduce its full-time positions to around 77,000 by 2018, down from current levels of some 103,000, as well as sever ties with 6,000 external service providers.
"This is never an easy task, and we will not do so lightly," Cryan said in Frankfurt. "I promise that we will take great care in this process, moving forward together with our workers’ representatives," he assured.
The event, which was meant to herald a new if painful beginning, was clouded by the company's quarterly earnings report. Just moments earlier, the lender had announced its biggest third-quarter net loss ever. Massive litigation costs and write-downs pushed Deutsche 6 billion euros into the red, the bank said - a result Cryan described as "highly disappointing."
Despite the disappointment, the loss didn't come as a surprise to analysts who had actually expected worse. In early October, Deutsche had warned investors it expected a 6.2 billion-euro net loss in the third quarter, driven, in part, by a slew of legal charges. The investment and retail bank is currently embroiled in around 6,000 different litigation cases. In April, it agreed to pay a record $2.5 billion (2.2 billion euros) as part of a settlement over allegations that it had helped rig key interest rate benchmark, including the London Interbank Offered Rate (LIBOR).
Earnings were hit by write-downs worth 5.8 billion euros in the corporate banking and securities division as well as the private and business clients section of the bank, Deutsche said.
In addition, the group took a charge of 649 million euros on its investment in China's Hua Xia Bank and set aside a further 1.2 billion euros in provisions for regulatory and litigation matters.
On top of this, "our revenues were impacted by challenging market conditions with persistent low interest rates and uncertainty around the (US) Federal Reserve's interest rate policy," Cryan said.
Sharing the pain
Deutsche Bank's bet is that Thursday's announcement will mark a badly needed turning point.
While many stakeholders are likely to see the cuts as necessary, there were other announcements that are likely to ruffle some feathers. Before unveiling the new strategy, the Management Board announced it would withhold dividends in 2015 and 2016. This would be the first time since Germany's postwar reconstruction that the lender has not paid dividends, including during the 2008-2009 financial crisis. The Board defended the move as a necessary measure to cut costs and meet the 2020 targets. The lender, however, did say it hoped to resume paying dividends in 2017.
However, shareholders might take some comfort in the fact that Cryan warned executives would not be spared. "There will be consequences on compensation," he said, adding it would be "unacceptable not to share some of the costs that we have suffered" as a "consequence of poor historic behaviour." However, he did not go into details.
pad/hg (AFP, dpa, Reuters)