Deutsche Bank reports net loss driven by transformation charges in the second quarter of 2019

Τετάρτη, 24 Ιουλίου 2019 17:22

Christian Sewing, Chief Executive Officer, said: “We have already taken significant steps to implement our strategy to transform Deutsche Bank. These are reflected in our results. A substantial part of our restructuring costs is already digested in the second quarter. Excluding transformation charges the bank would be profitable and in our more stable businesses revenues were flat or growing. This, combined with our solid capital and liquidity position, gives us a firm foundation for growth."

Second quarter and first half 2019 highlights 

— Second-quarter net loss of 3.1 billion euros after strategic transformation charges of 3.4 billion euros
– Substantial portion of expected transformation charges now taken
– Large majority of transformation charges have no impact on capital position
— Second-quarter net income would have been 231 million euros and pre-tax profit 441 million euros excluding transformation charges
— Revenues down 6% or 5% if adjusted for specific items1; revenues essentially flat or growing in more stable businesses (Global Transaction Banking, Private & Commercial Bank and Asset Management) if adjusted for specific items1
— Continued volume growth in the first half year
– Loan growth of 14 billion euros
– Net asset inflows of 20 billion euros
– Assets under management up 88 billion euros
— Noninterest expenses of 7.0 billion euros and adjusted costs2 of 5.7 billion euros. Excluding transformation charges, in the second quarter:
– Noninterest expenses down 3%
– Adjusted costs down 4%
– 6th consecutive quarter of year-on-year adjusted cost reduction ex-bank levies
— Capital position remains robust: Common Equity Tier 1 ratio of 13.4%
— Substantial progress on strategy execution
– Cash Equities positions exited/system shutdown initiated
– Negotiation of Prime Finance/Electronic Equities sale on track
– Over 900 employees given notice or informed their role will be eliminated
— As at 30 June 2019, businesses to be transferred into the Capital Release Unit accounted for (pro forma):
– Leverage exposures of 250 billion euros
– Risk weighted assets of 65 billion euros

Financial impact of strategic transformation charges

As a result of its announced restructuring, Deutsche Bank (XETRA: DBKGn.DB / NYSE: DB) reported a net loss of 3.1 billion euros in the quarter. Charges related to strategic transformation, including the impact of a lowered outlook on business plans, were 3.4 billion euros.

Excluding these charges, net income would have been 231 million euros versus 401 million euros in the prior year period.
The bank reported a loss before income taxes of 946 million euros including 1.4 billion euros in pre-tax transformation-related charges. Excluding these charges, pre-tax profit would have been 441 million euros versus 711 million euros in the second quarter of 2018.

Strategic transformation charges of 3.4 billion euros comprised Deferred Tax Asset (DTA) valuation adjustments of 2.0 billion euros, plus 1.4 billion euros comprising 1.0 billion euros of impairments on goodwill3 reflecting a lowered outlook on business plans, and 351 million euros of impairments on software and provision for existing service contracts. The large majority of these charges have no impact on Common Equity Tier 1 capital.

For the first six months of 2019, the bank reported a loss before income taxes of 654 million euros and a net loss of 2.9 billion euros, primarily driven by transformation-related charges in the second quarter of 2019. Excluding these charges, first-half pre-tax profit would have been 733 million euros, and first-half net income would have been 432 million euros. In the first six months of 2018, profit before tax was 1.1 billion euros and net income was 521 million euros.

Execution of Deutsche Bank’s transformation strategy is underway. In the first six months of 2019 the bank reduced leverage exposures in business to be transferred to the Capital Release Unit by 38 billion euros and risk weighted assets by 9 billion euros. Negotiations are on track for the sale of Prime Finance and the Electronic Equities platform to BNP Paribas. In Cash Equities, Deutsche Bank has exited positions and the shutdown of systems is in progress. Over 900 employees have either been given notice or informed that their role will be eliminated since the announcement of the transformation strategy.

Revenue share of more stable businesses is growing 

Net revenues were 6.2 billion euros in the quarter, down 6% on a reported basis compared to the prior year quarter and down 5% excluding specific items1. These items contributed a positive 109 million euros in the quarter, versus a positive 194 million euros in the prior year quarter.

Revenues in the Corporate & Investment Bank (CIB) were 2.9 billion euros, down 18% year-on-year, while revenues in the Private & Commercial Bank (PCB) were down 2%, or essentially flat if adjusted for specific items1. Revenues in Asset Management were up 6% year-on-year.

Revenues in more stable businesses – Global Transaction Banking, the Private & Commercial Bank and Asset Management – made up 65% of revenues in the quarter. These revenues were down 2% on a reported basis and up 1% adjusted for specific items(Specific revenue items, 2nd quarter 2019 versus 2nd quarter 2018). 

Full Report

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