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New Deutsche Bank boss flags shake-up plan, reveals 6 billion euro loss

A man walks near an office building, which houses the Russian headquarters of Deutsche Bank, in Moscow, Russia, September 17, 2015. REUTERS/Maxim Zmeyev -

By Arno Schuetze

FRANKFURT (Reuters) - 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 ax 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 U.S. 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.


CHANGE

It will take a 2.3 billion euro writedown at its investment banking unit, 16 years after acquiring the U.S. 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.

"Longtime 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.


COSTLY LITIGATION, ASIA TURMOIL

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.

After tax, Deutsche said, it is expecting a loss of 6.2 billion euros for the quarter. Without the impairments of goodwill and intangibles it would have lost 400 million euros in the July to September period.

Analysts on average had expected about 1 billion euros in third-quarter net income, based on three estimates, according to Thomson Reuters data.

Cryan said in July that raising additional equity would not solve the bank's core problem of low financial returns. But some analysts said a capital increase is still likely - probably next year.

"We think a capital increase is unlikely until 2016, after the cost saves and strategy has been bedded down. In our opinion a capital raise of up to 6 billion euros is possible," analysts at Citi said in a note.

The bank also warned investors, who have enjoyed stable dividend payments since 2009, it may cut or suspend payouts in 2015.

The bank will report its results on Oct. 29 along with more details of its so-called Strategy 2020, which will include massive and expensive cuts in its overhead operations, its retail and its investment bank.


(Reporting by Arno Schuetze; additional reporting by Andreas Kröner and Simon Jessop; Editing by Elaine Hardcastle and Susan Thomas)