Deutsche Bank AG, Germany’s biggest bank, said this year will be challenging after a surge in legal costs and lower debt trading revenue spurred a surprise fourth-quarter loss. The shares slumped.
Depressed interest rates in Europe and declining demand for banking services are also among the headwinds the bank faces in 2014, Co-Chief Executive Officer Anshu Jain said on a conference call with analysts from Frankfurt today.
Deutsche Bank, like JPMorgan Chase & Co. and Citigroup Inc., is paying the penalty for past misconduct by its staff, including manipulating interest and currency rates. At the same time, Jain, 51, said the firm is losing revenue in debt trading, a mainstay of income for investment banks, as it sheds assets to meet regulators’ stricter capital rules.
The fourth-quarter pretax loss of 1.15 billion euros ($1.56 billion) included 528 million euros in litigation-related expenses as well as costs tied to the bank’s reorganization. The average estimate of six analysts surveyed by Bloomberg was for a 628.5 million-euro pretax profit. The bank announced earnings yesterday, 10 days ahead of schedule.
“It is quite a messy result filled with legal and restructuring costs, which Deutsche would call as one-offs,” said Chad Padowitz, who oversees about $105 million in international equities as chief investment officer of Wingate Asset Management in Melbourne, Australia. “The biggest challenge for Deutsche and its European counterparts is to find avenues for growth.”
The shares of Europe’s biggest investment bank by revenue fell as much as 5.3% to 37.26 euros in Frankfurt, the biggest decline in 10 months. The stock has gained 2.3% over the past 12 months, lagging behind a 16% increase in the 44-company Bloomberg Europe Banks and Financial Services Index.
The fourth-quarter pretax loss narrowed from 3.17 billion euros in the same period of 2012, when it wrote down the value of businesses that failed to meet revenue expectations. Profit in the third quarter of last year was almost wiped out after the bank added 1.2 billion euros to its reserves for legal expenses.
“2014 will be another difficult year,” Dirk Becker, an analyst with Kepler Cheuvreux, who recommends investors buy the stock, said in an interview with Bloomberg Television in Frankfurt today. “We’ll probably see another 2 billion euros of litigation costs plus a lot of restructuring.”