FRANKFURT: Deutsche Bank warned that deeper cuts may be needed to turn itself around, after revenue fell sharply in the second quarter as the low interest rate environment and volatile markets weighed on the business.
"If the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring," Chief Executive John Cryan said on Wednesday. "We will not deviate from tough decisions just to flatter earnings in short term."
Shares in Germany's largest lender fell 4.2 percent by 0850 GMT, making them the biggest decliner in Germany's DAX index of blue chip companies.
Cryan said Deutsche was making progress on restructuring, removing risks from its books and investing in better IT infrastructure, but analysts said they had expected more focus on cost cutting given falling revenue in several business areas.
"We are disappointed that Deutsche Bank is not adjusting its cost target ... considering the lower revenue environment," JP Morgan analysts wrote in a note.
KBW analysts said they expected Deutsche would probably not be able to exceed the cost targets it set for 2018 and therefore would have trouble generating needed capital in an environment of negative interest rates.
"Concerns over capitalisation and internal capital generation remain since litigation charges were minimal," KBW said.
Quarterly litigation expenses fell to 120 million euros ($132 million) from 1.2 billion a year earlier, offsetting a rise in restructuring and severance costs.
Deutsche's efforts to restructure and boost profit have been dogged by billions of euros in costs for litigation, settlements and fines dating back to before the financial crisis.
LEGAL COSTS
Chief Financial Officer Marcus Schenck said the bank aims to bring an end to its four largest litigation cases this year.
These would include settling U.S. investigations into mis-selling of mortgage-backed securities, and ending a case involving alleged manipulation of foreign exchange rates, where the bank reached a settlement in Europe, but where negotiations with four U.S. regulators are ongoing.
It also hopes to put behind it a probe by European and U.S. regulators into suspicious equities trades in Russia, as well as remaining investigations by the Office of Foreign Assets Control on alleged money laundering, already partly settled.
Schenck said 2016 net profit will largely depend on the cost of the legal bill.
Quarterly net profit dropped to 20 million euros from 798 million a year earlier, but was ahead of forecasts for a 105 million loss.
Revenue was down 20 percent in volatile markets, in part related to Britain's vote to leave the European Union, with the investment bank sliding 28 percent.
Cash-cow bond trading activities decreased 19 percent, in part related to a decision to exit high-risk securitised trading.
The slip in earnings has been mirrored by European and U.S. banks' struggle with low interest rates, which hamper their ability to profit from lending.
Schenck said he expects revenue to pick up in the second half, compared with a weak last six months of 2015.
Deutsche Bank is one of the first large European banks to report second-quarter earnings, with Credit Suisse, UBS and Barclays set to follow later this week.
Spain's Santander on Wednesday reported a 50 percent drop in quarterly net profit, hit by one-off charges.
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