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Deutsche Bank (DB) Reports Loss in Q4 on Lower Revenues

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Deutsche Bank DB reported net loss of €409 million ($467.1 million) in fourth-quarter 2018 compared with a loss of €2.4 billion in the year-ago quarter. The bank incurred loss before taxes of €319 million ($364.3 million).

Lower revenues and higher provisions were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower expenses were the main positives.

For full-year 2018, Deutsche Bank reported net income of €341 million ($389.4 million) against net loss of €735 million at the end of 2017.

Fall in Revenues & Higher Provisions Offset Lower Costs

The bank reported net revenues of €5.6 billion ($6.4 billion) in the fourth quarter, down 2.4% year over year. Lower revenues in Asset Management along with Corporate & Investment Bank primarily due to implementation of strategic measures and a challenging market environment led to this downside.

For 2018, net revenues came in at €25.3 billion ($28.9 billion), down 4.3% from 2017. 

Revenues at the Corporate & Investment Banking (“CIB”) division of €2.6 billion ($3 billion) declined 4.9% from the year-ago quarter. Lower Fixed Income Sales & Trading along with Origination & Advisory revenues led to the fall.

The Private & Commercial Bank segment’s revenues totaled €2.5 billion ($2.9 billion), up 6.3% year over year. Higher revenues from business in and outside Germany resulted in the rise.

The Asset Management segment generated revenues of €514 million ($587 million), down 17.2% year over year, mainly due to lower management and performance fees and net outflows in the quarter of €7 billion ($8 billion). 

Provision for credit losses increased 95.3% from the year-ago quarter to €252 million ($287.8 million). The rise resulted largely from higher provisions in the CIB unit.

Non-interest expenses of €5.6 billion ($6.4 billion) were down 19.2% from the prior-year quarter. The decline resulted from the bank’s successful implementation of cost savings initiatives.

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 13.6% as of Dec 31, 2018, compared with 14% as of Dec 31, 2017. Leverage ratio, on an adjusted fully-loaded basis, was 4.1% as of Dec 31, 2018, up from 3.8% in the prior-year quarter. Risk-weighted assets amounted to €350 billion ($399.7 billion) as of December end, up 1.7%.

Outlook 2019

Considering the progress made in 2018, management lowered 2019 adjusted cost target to €21.8 billion from €22 billion previously announced.

Also, the bank reaffirmed its target to reduce the internal workforce to below 90,000 by the end of 2019. Additionally, Deutsche Bank reaffirmed its commitment to its plans to achieve a post-tax Return on Tangible Equity target of more than 4% in 2019.

Our Viewpoint

Deutsche Bank reported a decent quarter. Slight decline in revenues was offset by relatively lower expenses. The company has made several strategic moves to boost revenues and drive improvement across all the business segments.

Though Deutsche Bank’s restructuring efforts look encouraging, it is really difficult to determine how much the bank will gain, considering the lingering headwinds. Moreover, dismal revenue performance remains another concern.

Deutsche Bank Aktiengesellschaft Price and Consensus

Deutsche Bank Aktiengesellschaft Price and Consensus | Deutsche Bank Aktiengesellschaft Quote

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

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

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will release December-ended quarter numbers on Feb 4. Barclays PLC BCS will report results on Feb 28 and Credit Suisse CS is slated to report on Feb 13.

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