Deutsche Bank Reports Disastrous Results As It Retreats From US Investment Banking

One of these quarters Deutsche Bank is finally going to report a quarter that is not a disaster... just not today.

This morning, Germany's biggest bank reported its first earnings under its new CEO, Christian Sewing, which missed across the board: Q1 net revenue missed the lowest analyst estimate, coming at €6.98 billion, down 5% and below the estimate €7.27 billion, also missing the low end of the range (€7.12 billion to €7.33 billion), and unlike other banks where at least the rebound in equity trading helped offset stagnant FICC, that was not the case for DB where sales and trading crashed by 17% to €2.45 billion - compared with a an average 10% increase at the big 5 US banks - resulting in a 74% collapse in pre-tax income for the corporate investment bank.

Summing it up, Deutsche’s pre-tax income more than halved to €432MM from a year prior, missing average analyst expectations by almost a third, and resulting in a paltry €120 million in after tax profits, a 79% plunge Y/Y.

Christian Sewing, DB's new CEO, who unceremoniously replaced John Cryan one month ago, did not mince his words when slamming the abysmal results: "We are on a good track both in the DWS asset management business and in our Private & Commercial Bank, although we need to substantially improve profitability in both. Our Corporate & Investment Bank is also doing well in some areas and held or gained market share in certain areas. However, we are not strong enough in other areas of this business. Therefore we have to act decisively and to adjust our strategy. There is no time to lose as the current returns for our shareholders are not acceptable.”

Deutsche Bank's new CEO Christian Sewing

That was just the beginning, however, and as was rumored previously, the bank announced a sweeping restructuring plan, abandoning ambitions to be a top global securities firm, scaling back U.S. rates sales and trading, reducing the corporate finance business in the U.S. and Asia, and reviewing its global equities business with a view toward cutting it back, the bank said in a statement. The measures will lead to a “significant reduction” in the 97,130-person workforce this year, Deutsche Bank said. Read: massive layoffs.

Putting DB's collapse in context, just minutes later, UK's Barclays, Deutsche's biggest European peer, beat trading expectations for a second straight quarter, with revenue from markets rising 8 percent. Deutsche Bank stock tumbled as much as 4.2% before reversing losses and trading unchanged. The stock remains among the worst performers among European banks over the past years, and are trading 87% below its 2007 high.

While the action had been hinted previously, the announcement came as a bit of a shock to what was once a bank with ambitions to overtake both JPM and Goldman as a dominant name in the global arena.

The bank confirmed that it would exit from its investment banking activities where it lacked a “sustainable competitive advantage”, although it did not disclose the number of job cuts it was planning. Sewing said he wanted to lower the share in CIB revenue to 50 per cent by 2021, down from about 54 per cent in 2017.

As Bloomberg notes, the future of the investment bank had been a key factor in the tumultuous management shakeup that saw Christian Sewing take over John Cryan as chief executive officer this month. A Deutsche Bank veteran who started as an apprentice, Sewing is accelerating a push to refocus the lender on its European home market and reverse a two-decade effort to compete head-to-head with the large Wall Street firms that dominate volatile securities trading.

While shrinking the investment bank will make it harder for Sewing to return Deutsche Bank to growth, it could help him reach a target of 23 billion euros ($28 billion) in adjusted costs this year. Sewing has called the target “non-negotiable” in a memo to staff sent earlier in April. Deutsche Bank confirmed that target on Thursday, when it increased its estimate for restructuring expenses to 800 million euros this year, up from an earlier estimate of 500 million euros, Chief Financial Officer James von Moltke said.

The CFO told analysts that as most of the job cuts would happen outside Germany, where labour laws are rigid, they could be implemented quickly. "We are aiming to execute them in 2018,” said Mr von Moltke. He added the additional cuts in investment banking would come with €300m in further costs in 2018.

* * *

While analysts welcomed the massive overhaul, they pointed out that the lack of detail made it difficult to assess its real significance: the investment bank shift “appears to have some logic,” Andrew Coombs, an analyst at Citigroup Inc., wrote in a note to clients. “But we fear these steps could also have unintended consequences” for the rest of the business and “put even further pressure on both the capital position and earnings” in the short term.

Others chimed in: “we applaud [Mr] Sewing for getting full management support for a ‘shrinkage’ plan so quickly. What we are missing is timeframe and details,” wrote JPMorgan analyst Kian Abouhossein in a note to clients. Abouhossein previously urged Deutsche Bank to cut back it’s investment banking operations in the U.S., saying they’re not profitable enough. “We believe it is the right strategy especially taking into account the poor results” he added. UBS analyst Daniele Brupbacher pointed out that “it is unclear whether this is a radical change”. In calls with analysts and journalists, Sewing stressed that the cuts did not imply the investment bank was fully retreating from the US, although it was unclear what if any operations will remain.

Meanwhile, as it evacuates the US, Deutsche Bank said that it wants to focus its corporate finance business on industries that align with its European clients or areas where it has a leadership position. In U.S. rates sales and trading, it plans to shrink the balance sheet, leverage exposure and repo financing. In global equities, it wants to reduce leverage exposure to prime finance, focusing on the deepest relationships. As a reminder, Deutsche Bank has one of the largest derivative exposures on its balance sheet, at just under €50 trillion at the end of 2017.

Deutsche also said that it plans to focus its consumer bank on growing markets like Italy and Spain while in wealth management, the bank will look to grow in Germany and in international markets.

As Bloomberg adds, Thursday’s announcement marks a retreat from decades during which Germany’s largest lender sought to take on the largest Wall Street banks.

It joined the ranks of global securities firms with the 1989 purchase of British merchant bank Morgan Grenfell and a decade later purchased Bankers Trust, a New York derivatives house. That deal was a major step in the company’s transformation because it expanded access to the world’s biggest capital markets. Paul Achleitner, now Deutsche Bank’s supervisory board chairman, advised it on the purchase while at Goldman Sachs Group Inc.

The aggressive expansion crashed with a bang and led to a spate of legal and market manipulation scandals that took former CEO Cryan a good part of his three-year tenure to clean up. Deutsche Bank spent more than $17 billion paying fines and settling litigation since the start of 2008.

Comments

soyungato Thu, 04/26/2018 - 06:28 Permalink

They are trying to kill Julian Assange by isolating him . He has no internet access and they forbid him to receive any visitors. How long can he hold out ?

Hammer of Light TheSilentMajority Fri, 04/27/2018 - 04:05 Permalink

...and with DB Zero marks the implosion if the entire bond and derivatives sector dropping the entire house of cards.

The house of cards is not a bank. The house of cards is the complete system based upon credit interdependency.

This debt implosion clock is most assuredly ticking down to ZERO and there is no HEDGE for when this event finally takes place save only if you're good with being a surfer and planning on the rest of your natural life as a hunter gatherer living off a beach somewhere subsisting on Rum and Pussy lol! Hah... maybe surfers have it right eh?

 

This is a very big signal people to get into PM's if there ever was. Crypto's are a play to roll the rollers from the agency level on down. There are enormous numbers of big money pouring into NSA= Bitcoin. Right into the funnel they've prepared for you to funnel into and then they're going to loot you dry!

 

The ONLY surety is an easily convertible asset that you have physical control over, and even then, there's no guarantee that won't be confiscated at gunpoint.

 

This DB situation is an extreme harbinger of what is NOW not years from now to play out. We're in the the last of the "twilight's last gleaming" illusion delusion. Prep like you've never prepped before and then do it again!

 

Flat-liners are those who kept their money in paper or digital. Survivors keep their money in metal physical.

In reply to by TheSilentMajority

Byte Me Thu, 04/26/2018 - 06:33 Permalink

If I was playing the sweep for the first major to go tits-up and I had drawn this bank, I'd probably be OK with my chances.

What will be the final trigger? Who knows?

Arnold TeethVillage88s Thu, 04/26/2018 - 07:24 Permalink

PDF, i do not know how well it will link.

Quarterly Report on Bank Trading and Derivatives Activities - OCC
https://www.occ.treas.gov/topics/capital-markets/financial.../derivativ…

Closer to a point.

https://www.occ.treas.gov/topics/capital-markets/financial-markets/deri…

Citi has Big Boy pants too.
Concerns come, concerns go.
I wonder how the Cosby Trial is going?/s

In reply to by TeethVillage88s

Byte Me Dangerclose Thu, 04/26/2018 - 08:48 Permalink

Not a criticism of the strategy, which in a 'market' would be a quite reasonable bet.

BUT

When (say) any major goes bidless, the system is seriously frakked.

At which point, closing an open position is possibly 'problematic.'

For some dino like DB, the various exchanges that it's quoted across will likely also be out of step and open to (hypothetical) arbitrage.

How do you plan to collect?

 

In reply to by Dangerclose

Dilluminati Thu, 04/26/2018 - 06:48 Permalink

somebody put on a huge bet..

https://www.zerohedge.com/news/2018-04-25/mystery-bond-trader-makes-mas…

it's a "mystery bond trader" and I'm experienced enough to stay in the stands and off the field..

standard disclaimer.. the cunts!

Imagine somebody has money in the bank on May 4th 2007 and then goes into a coma and wakes up august 5 2016, they have 1 dollar for every fucking 10 they invested.

That is the definition of a cunt bank!

That is the definition of cunt mangement

That and with the illegals and immigrants running loose would be reason to want to go back to sleep again!

 

Last of the Mi… Thu, 04/26/2018 - 06:48 Permalink

How come the phone lines from DB to ECB are glowing red?

It's all musical chairs, we're gonna taper, we're gonna taper we're gonna taper and suddenly you're the only idiot standing with your earnings down 74% and as they say with "no real details given". Are you kidding me?

Money_for_Nothing Thu, 04/26/2018 - 07:01 Permalink

German Government will not allow DB to go under. I doubt the Fed would allow DB to go under. The only game in town is to recover from reduce trade by starting up regional manufacturing using automation or cheap labor depending on local conditions. International Banks are turning back into National Banks.

bustdrs Thu, 04/26/2018 - 07:08 Permalink

Seriously, tick fvcken toc, can we get this show on the road already.......

One credit event, just one, is all it'll take..........and 80billion euro a month too defend.......

rtb61 Thu, 04/26/2018 - 07:20 Permalink

The German government will end Russian sanctions in order to prop up Deutsche bank with Russian investments including and especially the Crimea, the US is not in a position to sanction Germany, it would not turn out will.

It is inevitable now, because of course Germany will have a temporary monopoly on Western investment into the Crimea allowing it to pick up a huge piece of it, this to make up for the losses.

The pressure will be immense of of course the US can make noise but sanctions against Germany or German companies would play out extremely badly for the US. The German will of course tell the UK to go screw itself, no one is trusting them any more, they really went one bridge to far and burned all their bridges behind them, the UK is heading to some really bad diplomatic shocks.

Batman11 Thu, 04/26/2018 - 07:53 Permalink

Bankers are like puppies, someone else needs to clean up their mess.

They will have been busy creating toxic assets like all the other bankers before 2008.

Has anyone cleared all this garbage off DB’s books?

The FED did it in the US, and UK taxpayers did the job here, has anyone cleaned up after those naughty German, banker puppies?

With no one guaranteed to clear up the mess that German investment bankers will produce, they had to cut back.

Dilluminati Batman11 Thu, 04/26/2018 - 08:00 Permalink

still not finished punishing savers.. socialism isn't complete until you make everyone poor

The 3 key statements remain unchanged:

  • Main refinancing operations: 0.00%
  • Marginal lending facility: 0.25%
  • Deposit facility: -0.40%

https://www.zerohedge.com/news/2018-04-26/ecb-keeps-qe-pledge-rates-unc…

Swedish Riksbank kept its overnight Rate unchanged at -0.50%

https://www.zerohedge.com/news/2018-04-26/stocks-rebound-10y-slides-bac…

The leftist socialist goes on TV and talks virtue signaling, talks knife control, talks gun control, punishes savers, invites immigrant crime, and then ignores those facts

On Iran they say there is no plan B, sounds like your local school board opposed to a voucher alternative.. it is systemic failure, failure like the Broward shooting at all levels of government

In reply to by Batman11

TeethVillage88s Dilluminati Thu, 04/26/2018 - 08:52 Permalink

Planned inflation does that.  Fiscal & Monetary.  Deflate the dollar... then act surprised that Veterans kill themselves, homeless people can't get back on their feet, ship jobs overseas to slave labor and be surprised that part time jobs are not enough... Finance Capitalism, Nixon Shock, WTO, Systemic assault on US Borders & Citizen jobs & Citizen Rights to what was developed over 500 years of struggle against the elites.  Systemic Failure is right.

- Systemic Failure, Systemic Corruption, Systemic Lobbying, Systemic disassembling of US Liberty & Freedom

In reply to by Dilluminati

Herdee Thu, 04/26/2018 - 09:45 Permalink

The big Baltic Pipeline coming into Germany from Russia might turn to be the project that helps the Americans shoot themselves in the foot. The Chinese could remove tariffs on European goods but keep them on American products. This is a long term plan to secure the EurAsian trade zone and the belt and road initiative for China. America could turn out to be a minor market going forward for the Chinese. Trillions in Asian infrastructure projects are being built to expand Chinese trade. Americans are pretty well left out and becoming isolationalists.