Reports

Deutsche Reports Narrower Net Loss In 2016, Wealth Revenues Rise

Tom Burroughes, Germany, London, 2 February 2017

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Net losses at the German lender narrowed last year, as the bank reported on the impact of restructuring and other changes made to turn fortunes around.

Deutsche Bank, which has been hit by regulatory fines and is engaging in heavy restructuring to restore profitability, said today that the costs of turnaround efforts meant it logged a net loss of €1.4 billion ($1.51 billion) for the whole of 2016, narrowing sharply, however, from a net loss of €6.8 billion a year earlier.

Germany's largest bank, which this week was punished by regulators for inadequate money laundering controls, said that in the final three months of last year, its net loss was €1.9 billion, narrowing slightly from a loss of €2.1 billion for the same period in 2015.

The fourth-quarter pre-tax loss was €2.4 billion, which includes charges related to impairments of good will and other intangible assets linked to the bank's sale of Abbey Life, litigation costs, severance payments and gains on disposals.

Revenues rose in the fourth quarter, rising 6 per cent year-on-year to €7.1 billion. For the full year, revenues fell 10 per cent to €30.0 billion, caused by a "challenging market environment, persistent low interest rates, Deutsche Bank-specific pressures and strategy execution," it said in a statement.

Last year, shares in the bank slid 23 per cent from 2015, raising worries about the financial health of the lender, seen as a critical player in the eurozone. Today, the bank said its core capital ratio (common equity tier one, fully loaded) - a key measure of a bank's financial strength - stood at 11.9 per cent at the end of 2016, rising from 11.1 per cent in Q3 2016, and the strongest level for 12 quarters.

“Our results for the year 2016 were heavily impacted by decisive management action taken to improve and modernise the bank, as well as by market turbulence for Deutsche Bank. We proved our resilience in a particularly tough year. We finished 2016 with pleasingly strong capital and liquidity ratios and we are optimistic after a promising start to this year," said John Cryan, chief executive.

Private wealth
In the private wealth and commercial clients segment (PW&CC), net revenues rose by 27 per cent year-on-year to €2.4 billion. This rise was caused by the gain on sale of the Hua Xia Bank stake of €800 million, it said. Prior-year comparisons were also affected by the sale of the bank's Private Client Services unit in September last year. If those items are taken out, revenues declined 7 per cent. Low interest rates and reduced client activity amid testing financial conditions affected results.

Pre-tax income at the segment was €701 million in Q4 2016, recovering from a net loss a year earlier of €527 million, it said.

Deutsche's PW&CC segment logged non-interest expenses of €1.6 billion in the fourth quarter, falling by 31 per cent from the prior-year period, largely reflecting lower restructuring expenses as well as a partial write-off of software incurred in the prior year period.

Client assets stood at €577 billion at the end of 2016, 12 per cent down on the year, the bank said.

As reported earlier this week, the UK's Financial Conduct Authority has fined the bank more than £163 million for having inadequate controls to stop money laundering (see here). In addition, authorities in New York have also imposed heavy fines, leaving the bank facing a total fine of £504 million.

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