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 The 1.15 billion euro ($1.56 billion) loss compounds problems that
have dogged Germany's biggest bank over the past year, including a
list of lawsuits and regulatory wrangles and the need to shore up
its balance sheet.
Co-Chief Executive Anshu Jain stuck by the bank's promise to meet
its 2015 targets while predicting a tough 2014.
"We are forecasting that 2014 will represent the turning point where
the bulk of our legacy losses, litigation and derisking costs ...
will be behind us," he told analysts in a conference call on Monday.
Jain said Deutsche's debt downturn was structural and required
shifting activities away from Europe and toward the more vibrant
U.S., and away from size and towards profitability.
"This is a change," Jain said. "We could afford to carry those
businesses in the past, we no longer can."
Deutsche's shares fell six percent in response to the unexpected
loss. This compared with a decline of 0.8 percent in an index of its
peers <.SX7P>. The bank, which published the results on Sunday, had
originally been set to report on January 29.
Revenue at Deutsche's debt-trading business, which accounts for
nearly three quarters of its trading revenue, fell by almost a
third, much more than at U.S. rivals which also suffered from a bond
trading slowdown ahead of a cut in the Federal Reserve's bond buying
to help the U.S. economy.
At Goldman Sachs <GS.N> and Citi <C.N>, for example, revenue from
bond trading fell 11 percent and 15 percent respectively in the
fourth quarter.
Deutsche, one of Europe's major bond trading houses, has been able
to vacuum up business from rival banks that are scaling back. But
tougher regulatory demands after the financial crisis have forced it
to shed assets itself.
"It's clear that Deutsche are stepping away from areas of business
which aren't profitable on an ROE (return on equity) basis," Reg
Watson, a portfolio manager in European equities at Standard Life,
said. "And this does mark a change and it's a change that management
are keen to emphasize — that they're no longer running the business
just for revenue, they're running it for profitability."
Shailesh Raikundlia, a London-based analyst at Espirito Santo, said
Deutsche was losing market share. "They're losing ground to the
likes of Barclays because they don't have the capital (to support a
big investment bank)."
Barclays is the other European bank heavily reliant on debt market
trading income. Its shares fell 2.0 percent on Monday.
LITIGATION COSTS
Litigation cost it 528 million euros in the quarter, bringing the
year's bill for fines and settlements to 2.5 billion euros and
lowering litigation reserves to 2.3 billion euros at year-end.
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Deutsche was fined $1.9 billion in December by the U.S. Federal
Housing Finance Agency and was also fined 725 million euros by
European Union antitrust regulators for rigging benchmark interest
rates.
Deutsche said no decision had been made yet on its 2013 dividend. It
would need to devote some 70 percent of net profit to dividends to
keep the payout unchanged at 75 cents a share.
On the positive side, the bank's restructuring plan edged ahead of
targets and capital ratios met industry expectations, even after the
higher losses, thanks to a greater than expected reduction in
assets.
Analysts had been positive about Deutsche before the bank's results,
with 23 of the 36 covering the stock rating it a "strong buy" or
"buy," according to Thomson Reuters data.
Analysts at JPMorgan remained positive, saying management deserved
credit for cutting balance sheet exposure and settling some
outstanding litigation.
"Management has delivered on our wish-list of aggressive exposure
reduction, bringing forward of cost savings and settlement of some
litigation," JPMorgan said.
Citi analyst Kinner Lakhani said even though Deutsche's story was
two steps forward, one step back, the shares still offered
significant upside potential for patient investors.
Before Monday, Deutsche Bank shares had rallied 13 percent so far in
2014, in line with European banking rivals.
Deutsche has an estimated forward price/book ratio of 0.7 compared
to 0.9 on average for rivals and a forward price/earnings ratio of
10.0 versus 13.6 for rivals, according to StarMine data.
The bank posted full-year pre-tax profit of 2.1 billion euros, half
of the 4.21 billion euros expected by analysts, according to data
from Thomson Reuters I/B/E/S.
($1 = 0.7376 euros)
(Reporting by Thomas Atkins; additional
reporting by Laura Noonan, Steve Slater and Jemima Kelly in London
and Jonathan Gould in Frankfurt; editing by Tom Pfeiffer and Jane
Merriman)
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