Deutsche Bank Slumps on Weak Trading -- WSJ

By Jenny Strasburg 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 31, 2019).

Deutsche Bank AG posted its second straight quarterly loss, as the troubled lender absorbed costs from its sweeping restructuring and its key fixed-income business performed poorly.

Shares in the bank closed down 7.9% Wednesday, among the weakest performers in the Stoxx Europe 600 index. The stock had its steepest daily fall since September 2016, according to FactSet.

Fixed-income trading, considered a core strength of Deutsche Bank, suffered a 13% revenue decline in the third quarter. The poor performance was an anomaly among most of its peers. Morgan Stanley, Barclays PLC and JPMorgan Chase & Co. achieved double-digit gains in fixed-income trading revenue in the third quarter compared with a year earlier.

Overall, the bank Wednesday reported a EUR832 million ($924 million) third-quarter net loss, compared with a profit of EUR229 million a year earlier. Analysts had expected a loss of about EUR772 million, according to FactSet. Revenue fell 15% to EUR5.3 billion, compared with a forecast of EUR5.53 billion.

The net loss largely stemmed from a EUR1 billion pretax loss in the new division where it has stashed businesses and positions it is selling or winding down -- what Deutsche Bank calls the Capital Release Unit, sometimes referred to as a "bad bank."

Under its revamp, which includes about 18,000 planned job cuts, Deutsche Bank has largely exited from equities trading and pulled back from other money-losing operations with the aim of focusing on long-term strengths.

But that has yet to bear fruit. In the reorganized investment bank, revenue fell 5% in the third quarter.

The fixed-income pain came largely from interest-rate trading and emerging-markets debt, including losses in Argentina that Chief Financial Officer James von Moltke declined to quantify on a conference call. He called the fixed-income results a "mixed picture" but said the bank is happy with areas such as currencies trading and predicts the overall business will stabilize.

Banks globally are also suffering from low or negative interest rates, with that prolonged weight on profit exacerbating Deutsche Bank's already low-margin retail market in Germany.

Deutsche Bank said its four core business divisions, including its investment- and corporate-banking units and asset management, were all profitable. Excluding the so-called bad-bank loss, the core operations collectively made a pretax profit of EUR353 million in the quarter.

Chief Executive Christian Sewing said the bank's transformation is on track, and that the restructuring pain will make Deutsche Bank leaner and more focused on serving European companies at home and abroad.

The bank said it is on course to meet its 2019 cost target, though some analysts pointed out that third-quarter costs were slightly higher than expected.

Mr. von Moltke said loan growth was consistent with the bank's strategy, and that it is carefully gauging credit quality. He noted Deutsche Bank's relatively stable provisions for loan losses, adding that those provisions are likely to go up, but calling that an anticipated "normalization."

Executives still expect Deutsche Bank to return to profitability or at least break even next year, Mr. von Moltke said Wednesday.

Corporate-bank revenue was up 6%, including an 8% increase in transaction-banking revenue. Overall private-bank and asset-management revenue were down 3% and 4%, respectively. DWS, the asset-management arm, attracted net inflows.

Mr. von Moltke told reporters that nothing in the results since July has led the bank to consider closing more businesses or lopping off more products than it already has planned or announced.

But executives have also acknowledged that investors have heard many restructuring promises before, only to be disappointed when cuts failed to bring stability. The bank, which is almost 150 years old, has had years of senior management turmoil and lost top bankers. Investors aren't convinced that the latest plan will succeed, either, analysts say.

--Pietro Lombardi contributed to this article.

Write to Jenny Strasburg at [e-mail]

(END) Dow Jones Newswires

October 31, 2019 02:47 ET (06:47 GMT)

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