Deutsche Bank Profit Halves on Litigation Costs

FRANKFURT-- Deutsche Bank AG on Sunday said its first-quarter net profit fell around 50% as strong revenue growth was outweighed by a record penalty to settle with authorities over rate-rigging allegations earlier this week.

Germany's largest bank said quarterly profit fell to EUR559 million ($607.8 million) from EUR1.1 billion a year earlier, while revenue rose 24% to EUR10.4 billion.

"These results provide a snapshot of a Deutsche Bank which is much stronger than when we began our journey in 2012. We have delivered robust operating performance," Co-Chief Executives Jürgen Fitschen and Anshu Jain said.

Analysts forecast an average net profit of around EUR770 million and revenue of EUR8.9 billion.

The consensus estimates were compiled before Deutsche Bank said Wednesday it would set aside EUR1.5 billion in additional litigation reserves for the quarter. The bulk of that sum was to cover a record $2.5 billion charge for settling with U.S. and U.K. regulators over allegations it manipulated the London interbank offered rate, or Libor.

The bank late Friday provided a preview of its long-awaited new strategy, confirming reports that it would dispose of its retail unit Postbank by floating a majority stake on the stock market. The bank will present the details of its overhaul Monday morning.

The overhaul is deemed necessary as Deutsche Bank is lagging behind its rivals in profitability, capital adequacy and share price. In the first quarter, return on equity--a key gauge of efficacy--fell to 3% from 8%, also burdened by a bank levy of EUR561 million for a rescue fund designed to shield taxpayers from having to pay for future bank failures.

A disposal of Postbank would hand Deutsche Bank's investment-banking activities an even more pronounced role. In the first quarter, the unit's revenue rose 15% to EUR4.65 billion, contributing around 45% of the bank's total revenue. The growth was underpinned by strong performances from its fixed-income and equity-sales-and-trading operations, whose revenue grew 9% and 31%, respectively. Increased trading activity was sparked by a stronger U.S. dollar and the European Central Bank's bond-buying program.

Deutsche Bank therefore outperformed many of its U.S. rivals in investment banking. Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley's investment-banking revenue grew between 3% and 8% in the first quarter.

Profit at the German lender's investment bank was dented, however, by the Libor charge.

The German lender's asset-and-wealth-management unit, which is slated to grow further under the new strategy, boosted revenue 29% to EUR1.4 billion, also helped by a stronger U.S. dollar.

Revenue at the bank's global transaction banking operations rose 11% to EUR1.1 billion, with its retail-banking revenue remained largely unchanged at EUR2.5 billion, with EUR935 million coming from Postbank.

Write to Eyk Henning at [e-mail]

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