Deutsche Bank warns of challenging times as revenue falls and shares tumble
Deutsche Bank shares tumbled yesterday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs that prompted the bank to warn of a challenging 2014.
Germany's biggest bank said revenue at its important debt-trading division fell 31pc in the quarter, a much bigger drop than at US rivals, which have also suffered from sluggish fixed-income trading.
Deutsche's bond trading business contributed 73pc of total trading revenue in 2013, the bank said.
The unexpected loss is likely to compound problems that have dogged the bank over the past year, which include a list of lawsuits and regulatory wrangles. It will also increase pressure on co-chief executives Anshu Jain and Juergen Fitschen to overhaul the group, including pushing through a culture change.
Deutsche's bond trading slump highlights the impact of a debt market slowdown in anticipation of an end to the US Federal Reserve's bond buying to help the US economy.
But bond-trading revenues at other big investment banks have not fallen as sharply as at Deutsche. At Goldman Sachs and Citi, for example, revenue from bond trading fell 11pc and 15pc respectively in the fourth quarter.
"The investment bank is losing market share," said Shailesh Raikundlia, a London-based analyst at Espirito Santo.
"They're losing ground to the likes of Barclays because they don't have the capital (to support a big investment bank)."
Litigation cost it €528m in the quarter, bringing the year's bill for fines and settlements to €2.5bn and lowering litigation reserves to €2.3bn at year-end.
Deutsche was fined $1.9bn in December by the US Federal Housing Finance Agency and was also fined €725m by European Union anti-trust regulators for rigging benchmark interest rates.
The bank's fourth-quarter pre-tax loss was €1.15bn.
Deutsche's shares fell as much as 5pc but pared losses later in the day.
On the positive side, the bank's restructuring plan is ahead of target and its all-important 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 unexpected publication of results on Sunday, with 23 of the 36 covering the stock rating it a "strong buy" or "buy" and another seven rating it a "hold," according to Thomson Reuters data.
Analysts at JPMorgan remained positive, saying management deserved credit for cutting balance sheet exposure and settling some outstanding litigation. (Reuters)