On Wednesday, Deutsche Bank AGDB announced expected net loss of around $7 billion (€6.2 billion) to be reported for third-quarter 2015 on Oct 29 based on certain charges to be incurred. Moreover, implementation of Strategy 2020 announced in April 2015 might result in a drop or elimination of the common share dividend for fiscal-year 2015. Notably, Deutsche Bank paid a dividend of €0.75 per share over the past six years.
The charges that are expected to negatively impact third-quarter results include an impairment of goodwill and certain intangibles of about €5.8 billion in Corporate Banking & Securities (CB&S) and Private & Business Clients (PBC) segments. Per the bank, such writedowns pertain to tougher regulatory requirements, which resulted in reduction in the value of investment banking business and other assets. Charges also include the expected value related to the disposal of the Postbank unit.
As per Deutsche Bank co-Chief Executive Officer (CEO) John Cryan, the employees' bonuses might be targeted due to €5.8 billion writedowns. "While compensation considerations are not based on this year's financial results alone, our shareholders will rightly expect employees to share something of the burden," Cryan said in a memo to staff. "Having said that, you have my personal commitment to try to achieve a fair balance between staff and shareholder interests."
Further, €0.6 billion on the carrying value of the German lender's 19.99% holding in Hua Xia Bank Co. Ltd. is also expected to incur. Deutsche Bank said it "no longer considers this stake to be strategic." The bank also has kept aside about €1.2 billion as litigation provisions.
Excluding such non-recurring charges, the bank expects third-quarter net loss to be around €0.4 billion. However, Deutsche Bank's regulatory capital ratios are anticipated to be spared from such charges in the third quarter.
The bank's new CEO, John Cryan, who succeeded co-CEO Anshu Jain in June, is expediting efforts to revamp the bank. In a Jul 1 memo, Cryan has pressed for the need of simplifying the bank's business model, reducing costs and pulling back unprofitable businesses. We believe gradual execution of the restructuring moves should support the growth prospects of the company.
While the new CEO of Deutsche Bank looks all proactive, it is really difficult to state how much the bank will gain under his leadership or to what extent the bank's performance will get a boost, given the current headwinds it is facing. As the European economy is yet to stabilize, we don't foresee any significant favorable change in the company's performance in the near term.
Deutsche Bank currently carries a Zacks Rank #2 (Buy). Other foreign banks worth considering include Mitsubishi UFJ Financial Group, Inc. MTU , Mizuho Financial Group, Inc. MFG and Sumitomo Mitsui Financial Group, Inc. SMFG . All three carry a Zacks Rank #2 as well.
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