Germany's largest lender
Deutsche Bank AG
) reported its highest quarterly loss in almost four years. The
loss per share came in at €2.31 in the fourth quarter of 2012,
compared with the year-ago earnings per share of €0.15. The bank
was hit hard by a slew of litigation as well as restructuring
The bank's net loss came in at €2.2 billion ($3.0 billion) in the
quarter against net income of €186 million ($241 million) in the
prior-year quarter. The loss was driven by a number of litigation
as well as restructuring charges.
However, the quarterly results witnessed enhanced revenues.
Particularly, the performance of its Corporate Banking and
Securities segments improved significantly as market conditions
elevated and client activity increased. Strong capital position
was also a positive. Yet, these were mostly offset by costs
related to restructuring efforts of Strategy 2015+, which was
launched in September last year along with litigation related
For full-year 2012, net income came in at €665 million ($862
million) or €0.64 per share compared with €4.3 billion ($5.6
billion) or €4.30 per share last year.
Quarter in Detail
Deutsche Bank reported net revenue of €7.9 billion ($10.2
billion), up 14% from the comparable quarter last year. The
improvement was mainly attributable to increased revenues in Core
banking division along with lower negative revenues in the
Non-core operation unit.
For the full year, Deutsche Bank reported net revenue of €33.7
billion ($43.7 billion), up 2% from 2011.
Improved market conditions and higher market activity pulled up
its Corporate Banking and Securities (CB&S) revenues 43% from
the prior-year quarter to €3.4 billion ($4.4 billion).
At Deutsche Bank's Global Transaction Banking (GTB) business,
solid business volumes aided a 15% year-over-year expansion in
revenues to €1.1 billion ($1.4 billion).
Moreover, Asset and Wealth Management (AWM) segment posted a
year-over-year decline in revenues of 11% to €1.1 billion ($1.4
billion). The decline was attributable to effects from
mark-to-market movements on investments held to back insurance
policyholder claims in AbbeyLife, lower revenues of in
Alternative Fund Solutions due to reduced demand for hedge fund
products, partly offset by higher revenues from
advisory/brokerage and lower non-interest expenses.
Also, Deutsche Bank's Private & Business Clients (PBC)
segment's revenue stood at €2.4 billion ($3.1 billion),
representing a decline of 7% from the prior-year quarter.
The provision for credit losses came down 20% from the year-ago
period to €434 million.
However, non-interest expenses of €10.0 billion surged 49% from
the year-ago period and were significantly hit by €1.9
billion impairments of goodwill and other intangible assets,
along with €1.0 billion of significant litigation-related
Deutsche Bank's core Tier 1 capital ratio based on Basel 2.5
rules came at 15.3% at the end of the reported quarter, up from
12.9% at the end of the prior quarter. The company adopted
de-risking measures that led to decrease in capital deduction
items and reduced risk-weighted assets. As of Dec 31, 2012, the
bank's Basel 3 core Tier 1 ratio came in at 8.0%, significantly
above the Bank's communicated target of 7.2%.
Risk-weighted assets moved down to €334 billion from €381 billion
at the end of the year-ago quarter. Total assets dipped 7% to
€2.0 trillion compared with €2.2 trillion at the end of the prior
Deutsche Bank is focused on scaling back its risk-weighted
assets. Its de-risking measures are also on track. The company
aims at achieving €90 billion of risk-weighted assets equivalent
reduction by Mar 31, 2013. In the second half of 2012, the Bank
achieved a reduction in Basel 3 risk weighted asset equivalents
of €80 billion.
Hence, Deutsche Bank raises its target for the Basel 3 core Tier
1 capital ratio in the range of 8.0%-8.5% for Mar 31, 2013.
In its Strategy 2015+, the bank disclosed a number of initiatives
aimed at bolstering its competitiveness through efficiency
improvements cost cuts and reduced complexity. Further, the
company altered the compensation practices of the top management.
The new policies included the chief executives of the company
having their bonuses paid after 5 years, instead of the previous
practice of part-payment over a span of 3 years.
The company contemplates making investments of about €4 billion
over the next 3 years in such measures to help achieve full
run-rate annual cost savings of €4.5 billion by 2015 and slash
more than 1900 jobs, mainly in the investment banking division.
The initial phase of this revamping initiative has been
implemented since the third quarter of 2012.
Deutsche Bank has adopted several strategic initiatives,
including the repositioning of its core business and bolstering
of its capital levels. While these initiatives augur well for its
growth, costs associated with such efforts cannot be ignored.
Hurt by the Eurozone debt crisis, Deutsche Bank experienced
trading revenue declines in the past. Amid the stressed operating
environment, lower returns and stringent capital norms, the
company is rightsizing its business through job cuts and various
Moreover, owing to macroeconomic uncertainty and cautious
approach of management, we believe that Deutsche Bank would find
it hard to report a substantial improvement in bottom line in the
Deutsche Bank currently retains a Zacks Rank #3 (Hold). Foreign
banks that are performing well include
Bank of China Limited
Credit Suisse Group
). Bank of China carries a Zacks Rank #1 (Strong Buy), while the
other 2 stocks carry a Zacks Rank #2 (Buy).
(BACHY): ETF Research Reports
CREDIT SUISSE (CS): Free Stock Analysis
DEUTSCHE BK AG (DB): Free Stock Analysis
UBS AG (UBS): Free Stock Analysis Report
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