By Tom Sims and Matthias Inverardi
FRANKFURT (Reuters) – Deutsche Bank on Thursday posted a bigger-than-expected drop in fourth quarter and 2024 full-year profit as legal provisions and restructuring costs eroded revenue gains at its global investment banking division.
Deutsche, Germany’s largest lender, also abandoned a key cost target, and it announced plans to buy back 750 million euros ($780.90 million) in shares.
The results prepare the ground for a crucial year as CEO Christian Sewing seeks to meet a series of ambitious profit and cost targets he set to further underpin the once-troubled bank. Some analysts have been sceptical that Deutsche will reach all its goals.
“We have always said that 2025 will be decisive for us. At the end of this year, we will be judged by whether we have been successful with our transformation and growth strategy,” Sewing wrote in a memo to employees.
The bank on Thursday ditched its closely watched cost target for 2025, saying it wanted to make investments in business. It now aims for a cost-to-income ratio of below 65%, compared with previous plans for less than 62.5%.
The bank recorded net profit attributable to shareholders of 106 million euros in the quarter, slumping from 1.26 billion euros a year earlier and worse than analyst expectations for around 380 million euros.
For the full year, Deutsche recorded profit of 2.70 billion euros, down from 4.21 billion for 2023 and missing expectations for nearly 3 billion euros.
The bank’s shares, which have gained in recent months, were down 4% in early trade. Analysts at RBC said they were disappointed by the bank’s performance on costs.
Still, executives noted the bank was strong operationally, marking its fifth consecutive year in the black after years of turmoil and losses. Even so, over the past decade the bank has still lost more than it has earned.
A 15-quarter profit streak was interrupted in the second quarter of last year after it made a large provision for investor lawsuits at its Postbank retail division.
European banks on the whole are expected to report a sharp rise in profits for the final three months of 2024, helped by still-robust margins from lending and bumper investment banking revenues.
GERMAN ELECTION UNCERTAINTY
Deutsche operates from Sydney to New York, but its home economy in Germany, Europe’s largest, has stagnated, something the nation’s financial regulator this week warned will eat into banks’ profits and result in corporate loan defaults.
Snap national elections next month have further increased uncertainty.
Deutsche posted a fourth-quarter provision of more than 300 million euros for litigation around foreign currency loans in Poland – an issue also dragging down competitors – as well as nearly 300 million euros in restructuring and severance costs, and 260 million euros after a lawsuit in Russia.
U.S. banks this month reported surging investment banking revenues, raising expectations for European banks with large trading divisions.
Fourth-quarter revenue at Deutsche’s investment bank rose 30%, better than expectations for a 20% increase, and compared with gains of 49% at competitor JPMorgan and 24% at Goldman Sachs.
At Deutsche’s retail division, which includes Postbank, revenue fell 1%, in line with expectations. The corporate bank saw a 2% decline in revenue, half the expected 4% decline.
As part of a 2019 revamp, Deutsche had tried to rebalance the lender so that the volatile investment bank – once its problem child – carried less weight. But it is forecast to remain the largest division in the coming years and was the biggest revenue driver in the fourth quarter.
Within the investment bank, revenue for fixed-income and currency trading, one of its largest businesses, rose 26%, topping expectations of a 12% gain. Similar revenue rose 20% at JPMorgan and 35% at Goldman.
Origination and advisory revenue rose 71%, also comfortably beating expectations of a 54% increase.
($1 = 0.9604 euros)
(Reporting by Tom Sims and Matthias Inverardi, Editing by Miranda Murray, Rachel More, Stephen Coates and Shri Navaratnam, Kirsten Donovan)
