Deutsche Bank warns of
tough times ahead due to U.S. fine
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[October 27, 2016]
By Arno Schuetze and Anjuli Davies
FRANKFURT
(Reuters) - Deutsche Bank chief John Cryan pledged to redouble
restructuring efforts on Thursday, warning that it faces tough times
finalizing talks with U.S. justice authorities over a multi billion
dollar fine.
Germany's biggest lender earlier posted an unexpected quarterly profit,
benefiting from a modest rebound in bond trading, but failed to dispel
the cloud of uncertainty that drove clients to withdraw billions of
euros.
Cryan said on a conference call that the quarter had been overshadowed
by talks over the U.S. Department of Justice’s settlement proposal
relating to sales of RMBS (residential mortgage-backed securities) which
had caused uncertainty.
As well as having an impact on investor and client views of the bank,
this uncertainty had also taken its toll on "financial planning and
strategy execution", Cryan added.
Cryan warned Deutsche Bank employees in a letter that the situation
"will stay difficult for a while" and said he was working to finalize
the settlement "as soon as possible".
Deutsche Bank would also intensify a major restructuring to counter a
deteriorating environment for banking in Europe and elsewhere, Cryan
said.
However, a top ten shareholder called on the bank's management to make
deeper cuts in its trading activities. "Fixed income is still oversized
in terms of cost and on group level there are still 10,000 staff too
many."
Despite weeks of negative headlines, Deutsche was able to announce an
unexpected net profit of 278 million euros ($303 million) in the third
quarter, lifted by a surge in bond trading that boosted all Wall Street
banks.
This sent its shares to a more than one-month high, but they retreated
in line with the market to be down 0.3 percent.
Deutsche Bank's Chief Financial Officer Marcus Schenck also struck a
positive note, saying he expects the fourth quarter trading business
overall to exceed last year's performance.
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SPREADSHEET MYTH
Cryan said he was spending at least an hour a day explaining the bank's
position to clients, adding: "To dispel any myths, I don't just sit
poring over spreadsheets".
Negotiations over a $14 billion demand from the U.S. DoJ for misselling
toxic mortgage-backed securities before the 2007-2009 financial crisis
have set a bleak backdrop for Cryan.
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Thursday's results gave some insight into how this demand has rocked confidence
in Deutsche Bank, which plays a critical role in financing some of Germany's
biggest companies.
In retail and wealth management, which had assets of almost 440 billion euros,
clients withdrew 9 billion euros in the third quarter, Deutsche Bank revealed.
Outflows had since abated, it said, although its global markets trading business
was also hit.
Cryan
said the bank had liquidity reserves of 200 billion euros, a fall from the more
than 215 billion he had outlined on Sept. 30. In June, the bank had 223 billion
euros.
Deutsche Bank set aside more money for its legal bill for numerous past
missteps. Litigation reserves rose to 5.9 billion from 5.5 billion at the end of
June.
However, Deutsche Bank has so far not made a specific proposal for what it would
be willing to pay to settle the RMBS case and has therefore not upped its
provisions for it. It had hoped to settle the case for about $3 billion.
![](http://archives.lincolndailynews.com/2016/Oct/27/images/ads/current/ldn_sda_062409.png)
Revenue grew slightly at 7.5 billion euros, ahead of analysts' expectations,
mainly driven by Deutsche's trading, while business declined in other operating
areas.
"Top down, revenues were stronger and the bank is delivering on costs with this
quarter being a fourth consecutive one of declining operating expenses,"
analysts at Morgan Stanley noted.
Its bond trading, which has volatile earnings and tough capital requirements to
meet, revenues were up 14 percent. But the rebound was less pronounced than at
peers because of cuts Deutsche has made to the division. Barclays on Thursday
reported a 40 percent spike in its business.
In equities trading, Deutsche saw revenue fall as low stock market volatility
gave investors less reason to trade, while revenue from corporate and investment
banking fell by 1 percent.
($1 = 0.9173 euros)
(Additional reporting by Kathrin Jones; Writing by John O'Donnell; Editing by
David Holmes and Alexander Smith)
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