Deutsche Bank has increased its cost-cutting ambitions after reporting a a much bigger quarterly loss .Mainly because of a poor performance at its investment bank. Germany’s largest lender is struggling to convince investors that it can reverse persistent declines in revenues after it suffered more sharp drops in its main activity of trading and issuing debt in the final three months of last year.
Deutsche Bank reported Q4 net revenue of €5.58BN – the lowest quarterly print in years – and 2.6% below the average analyst estimate of €5.73, led by another decline in trading revenue, resulting in a pretax loss of €319 million in line with estimates of a €331.0 million loss.
As the bank shrank for an eighth straight quarter in the final months of last year, CEO Christian Sewing pledged even more cost cuts although it is clear by now that cost cutting has starting to eat into profits.
To wit, in the volatile fourth quarter, in which market gyrations were supposed to help the company’s trading desk (despite images of police raiding the bank’s headquarters in November) revenue shrank another 2.4%, led by a slump in the key fixed-income trading business that did even worse than peers. The key bank’s securities unit slumped, losing market share particularly in fixed income trading, where revenue slumped 23%, but also in equities, which declined 0.8%; both missed consensus estimates. The bank’s U.S. peers on average reported a 17% drop in FICC and 4% higher equities revenue.
But Mr Sewing said that compared with a weaker than expected final quarter of 2018, the lender had seen “signs of improvements” in January. Citigroup analyst Andrew Coombs pointed out “the bank still appears to be losing CIB market share, which we fear will continue”, adding that Deutsche’s cost cutting and balance sheet reduction “seems to have come at the expense of revenues”. Mr Sewing, however, argued: “We managed to surprise in this regard [ . . .] because we succeeded in cutting costs by a greater amount than the fall in revenues.”
Deutsche Bank commented that year-end revenues were hit by “challenging financial markets” as well as “negative Deutsche Bank-specific news, including the raid by state prosecutors on the bank’s premises in late November”. The lender it has nearly wholly resolved 19 of its 20 biggest litigation headaches and said that “no new matters with an order of magnitude or financial risk similar to those matters have arisen”.
“We believe in our plan for 2019 and will work hard [to deliver it],” said the CEO, adding he was “unconcerned about everything else” and won’t engage in any speculation.
Sewing also said the bank would return to “controlled” growth, a promise that eluded his predecessor, and said if revenue keeps disappointing, he’ll find more savings. At some point, though, even he will have to admit that at this point DB has cut out all the fat and is increasingly chopping away muscle, with any new terminations resulting in direct hits to the bottom line.
The latest very poor results, Sewing did deliver on one pledge: to post the first annual profit in four years, with Deutsche Bank reporting net income after minority interests of 267 million euros for 2018, despite a bigger-than-expected loss in the final three months. The bank also achieved a target of keeping costs, adjusted for one-time items, to below 23 billion euros.
“If the revenue environment does not develop as we expect, we will seek additional savings,” Sewing said. “Beyond 2019, we are still committed to further reducing our costs and improving our cost-income ratio.”