Deutsche Bank's new boss John Cryan set about cleaning up Germany's biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut. Write downs, impairments and litigation costs all contributed to the loss, the bank said. Cryan became chief executive in July with a promise to cut costs.
The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to axe about 23,000 jobs, or a quarter of the bank's staff, sources told Reuters last month. "The news is not good, and I expect a number of you will be very disappointed by it," Cryan, who has a reputation for swift action and straight talk, said in an open letter to staff. He warned them bonuses would be cut as staff needed "to share something of the burden" of the losses.
It is another blow to corporate Germany, which has been rocked by a scandal at Volkswagen after the auto-maker admitted to cheating US emissions tests. Europe's largest economy is already feeling the pain from a slowdown in emerging markets, with exports plunging in August by their largest amount since the 2008-2009 financial crisis. Shares in Germany's flagship lender fell 3 percent at first, but rallied before dipping 0.6 percent to 25.31 euros by 1323 GMT, valuing it at $40 billion.
Its share price has fallen more than 20 percent in the last six months, suffering under stalled reforms and rising costs on top of fines and settlements that have pushed the bank to the bottom of the valuation rankings of global investment banks. Still, traders and analysts praised Cryan for taking action to tackle long-standing problems, and it also appeared unlikely the bank would have to raise capital soon despite the losses.
It will take a 2.3 billion euro writedown at its investment banking unit, 16 years after acquiring the US investment bank Bankers Trust. It will also take a 3.5 billion euro impairment on its Postbank retail bank and 600 million more on a stake in China's Hua Xia Bank. It has earmarked the two assets for disposal.
"Long-time board members often hesitate to do drastic cuts. Now there's a wind of change," said one of the bank's top 10 investors, who asked not to be identified. "Now it is clear that the bank is not planning a cap hike in the short term," he added. Most of the writedown is on goodwill, which does not affect the bank's capital position. Deutsche Bank said its core capital ratio stood at about 11 percent at the end of September, compared with 11.4 percent at the end of June. Fund manager Ingo Speich from Union Investment, among the top 20 shareholders, said he expected some executives deemed responsible for past mistakes to be replaced.
"Saying now that the 2015 dividend may be skipped is mainly a signal to staff," he told Reuters, adding that cutting investment bankers' bonuses would help regain investor confidence. As in the second quarter, the bank is setting aside another 1.2 billion euros for fines and settlements. Its legal worries include investigations into possible manipulation of benchmark currency rates and dealings with Iran.
Cryan said he expected litigation costs "to continue to burden us in future quarters." Standard & Poors said the goodwill writedowns and litigation provisions would not affect Deutsche's credit ratings. The legal costs and turmoil in Asian markets have constrained Cryan's ability to reform. Complicating his task, Deutsche is also the last big investment bank to slim down, long after rivals such as UBS, Barclays and Credit Suisse.
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