Frankfurt, January 30 – Deutsche Bank reported a larger-than-expected decline in its fourth-quarter and 2024 full-year profits on Thursday. Legal provisions and restructuring costs negatively impacted revenue gains in its global investment banking division.
As Germany’s largest lender, Deutsche also announced plans to buy back more shares and abandoned a key cost target.
These results set the stage for a critical year for Deutsche. CEO Christian Sewing aims to achieve several ambitious profit and cost targets to strengthen the bank, which has faced challenges in the past. Some analysts remain skeptical about the bank’s ability to meet all its goals.
“We have always said that 2025 will be decisive for us. At the end of this year, we will be judged by whether we have been successful with our transformation and growth strategy,” Sewing wrote in a memo to employees.
On Thursday, the bank discarded its closely watched cost target for 2025. It now plans to focus on making investments in its business. The new goal is a cost-to-income ratio of below 65%, compared to the previous target of less than 62.5%.
In the fourth quarter, Deutsche recorded a net profit attributable to shareholders of 106 million euros ($110.43 million). This figure is down from a profit of 1.26 billion euros a year earlier and fell short of analyst expectations for around 380 million euros.
For the full year, Deutsche reported a profit of 2.70 billion euros, down from 4.21 billion euros in 2023. This also missed expectations of nearly 3 billion euros.
Despite recent gains, the bank’s shares fell 3% in pre-market trading.
Executives highlighted the bank’s operational strength, noting that the past year marked its fifth consecutive year of profitability after years of turmoil. However, over the past decade, Deutsche has still lost more than it has earned.
The bank’s 15-quarter profit streak ended in the second quarter of last year due to a significant provision for investor lawsuits related to its Postbank retail division.
Several large European banks are set to release their quarterly reports in the coming weeks. Overall, European banks are expected to report a sharp increase in profits for the last three months of the year, driven by strong lending margins and robust investment banking revenues.
UNCERTAINTY SURROUNDING GERMAN ELECTIONS
Deutsche Bank operates globally, from Sydney to New York. However, the German economy, its home market, has stagnated. This week, the nation’s financial regulator warned that this stagnation will impact banks’ profits and lead to loan defaults among corporate clients.
National elections have added further uncertainty to Europe’s largest economy.
In the past quarter, Deutsche set aside over 300 million euros for litigation related to foreign currency loans in Poland. This issue also affects its competitors. Additionally, the bank incurred nearly 300 million euros in restructuring and severance costs.
U.S. banks recently reported soaring investment banking revenues, raising expectations for European banks with significant trading divisions.
Deutsche’s investment bank saw a revenue increase of 30%, surpassing expectations for a 20% rise. In comparison, JPMorgan experienced a 49% gain, while Goldman Sachs reported a 24% increase.
Revenues in Deutsche’s other two major divisions were less impressive.
The retail division, which includes Postbank, saw a 1% decline in revenue, matching expectations. The corporate bank experienced a 2% revenue drop, while analysts had anticipated a 4% decline.
The investment bank remained the largest revenue contributor.
As part of a 2019 overhaul, Deutsche aimed to reduce the investment bank’s influence, as it was once seen as a problem area. However, it is expected to continue being the largest division in the coming years.
Within the investment bank, revenue from fixed-income and currency trading rose 26%, exceeding expectations for a 12% increase. This segment saw a 20% rise at JPMorgan and a 35% increase at Goldman.
Origination and advisory services were also strong, with revenue surging 71%, compared to expectations of a 54% increase.
The bank announced it had received approval for a share buyback of 750 million euros in shares.
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