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Deutsche Bank (DB) Incurs Net Loss in Q4, Revenues Down

Deutsche Bank AG DB reported net loss of €2.2 billion ($2.6 billion) in fourth-quarter 2017, compared with net loss of €1.9 billion ($2.3 billion) in the year-ago quarter. The results were affected by non-cash charge of €1.4 billion resulting from a valuation adjustment on its deferred tax assets due to the tax reform.

Also, the bank reported loss before income taxes of €1.3 billion ($1.6 billion) compared with loss of €2.4 billion ($2.9 billion) in prior-year quarter.

Cost management and reduction in provisions were the positive factors. However, lower revenues due to trading slump remained an undermining factor. Notably, net new money inflows were recorded during the quarter.

For 2017, Deutsche Bank reported net loss of €0.5 billion ($0.6 billion). However, it reported income before income taxes of €1.3 billion ($1.6 billion) versus a pre-tax loss of €810 million ($968.8 million) in 2016.

Recently, the German bank agreed to a $70-million settlement with the U.S. regulator over manipulation of the benchmark interest rate derivatives and other financial instruments.

Weak Revenues & Low Provisions Recorded, Costs Down

For 2017, net revenues were €26.4 billion ($31.6 billion), down 12% year over year.

The bank reported net revenues of €5.7 billion ($6.8 billion) in the fourth quarter, down 19% year over year. Low client activity levels and interest rates, along with subdued volatility, during the quarter led to the downside. Also, the quarter was particularly impacted by strategic business disposals.

Fourth-quarter revenues at the Corporate & Investment Bank (“CIB”) division of €2.7 billion ($3.2 billion) declined 16% from the year-ago quarter on soft client activity and subdued volatility. Lower Equity Sales & Trading and Origination and Advisory revenues along with reduced revenues in Global Transaction Banking led to the fall. Moreover, reduction in Fixed Income & Currencies revenues was also recorded.

The Private & Commercial Bank (“PCB”) segment’s revenues totaled €2.3 billion ($3.1 billion), down 27.8% year over year, reflecting a loss related to the agreement to sell a portion of the Polish business.

The Deutsche Asset Management (Deutsche AM) segment generated revenues of €621 million ($742.7 million) in the quarter, down 22.2% year over year. Results reflect absence of revenues from Abbey Life (divested in 2016), and reduced performance and transaction fees. Net new money inflows for the year were €16 billion ($19.1 billion).

The provision for credit losses declined 74% from the year-ago quarter to €129 million ($154.3 million). The decline resulted from upbeat performance in CIB and strong credit quality in PCB.

Non-interest expenses of €6.9 billion ($8.3 billion) were down 23% from the prior-year quarter. The decline was due to non-recurrence of an impairment for Abbey Life and lower litigation expenses.

Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio (pro-forma Capital Requirements Regulation (CRR)/Capital Requirements Directive 4 (CRD 4) fully loaded) came in at 14% as of Dec 31, 2017, compared with 13.8% recorded as of Dec 31, 2016. Leverage ratio, on an adjusted fully-loaded basis, was 3.8% as of Dec 31, 2017, stable with prior-year quarter. Risk-weighted assets amounted to €11 billion ($418.9 billion) as of Dec 31, 2017, down 3.6% year over year.

Our Viewpoint

Deutsche Bank continues to be affected by low interest rates, which keep its revenues under pressure. Further, litigation issues and other lingering headwinds are likely to affect its performance in quarters ahead.

However, its prudent cost-control initiatives and efforts to maintain a sturdy capital position might lend support.

Deutsche Bank AG Price and Consensus

Deutsche Bank AG Price and Consensus | Deutsche Bank AG Quote

Deutsche Bank carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other foreign banks, BanColombia S.A. CIB is scheduled to report results on Feb 20 while Macro Bank BMA and Banco Bilbao Viscaya Argentaria S.A. BBVA are scheduled to report on Feb 21 and Feb 7, respectively.

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