At the end of last month Deutsche Bank’s share price hit a one-year high just shy of €20, which would appear to suggest that its recent woes may well be behind it.
It is certainly true that the biggest concerns about its ability to meet the $7.2bn fine from the US Department of Justice have been allayed to a certain extent by the agreement reached on 23 December.
The partial resolution of the Russian mirror trades investigation with the UK’s FCA and New York’s Department of Financial Services for the rather miserly combined sum of $629m, is yet another obstacle on the bank's road to cleaning up its various legacy issues.
An ongoing criminal investigation remains a concern, as do two other investigations. These consist of alleged FX currency manipulation and another into alleged US sanctions violations, the costs of which are expected to be materially less than the DoJ fine.
In its Q3 results the bank posted a modest profit of €278m compared to the huge loss booked a year previously, noting a particular improvement in its bond trading business, and this continued in Q4 with an 11% rise in revenue, though its equities trading division saw revenue decline.
Expectations around this latest quarter are for the improvement in trading revenue to continue, as they have for other banks in the sector, in the wake of the US election. This does appear to have been the case, although the rise in revenue has been far less than its peers, probably due to lingering apprehension about its overall fiscal position, as market participants pare back their dealings with the bank. This suggests that while financial conditions have eased, it doesn’t mean the heavy lifting for Germany’s biggest bank isn’t set to continue.
We’ve already seen the bank quite rightly slash its bonus pool for senior managers in preparation for today’s loss of €1.9bn for the year, though the first three quarters did see a net profit of €530m. The bank also increased its provisions with respect to future litigation from €5.9bn to €7.6bn. More importantly the bank will be keen to stem the outflow of cash by investors that we’ve seen in the first nine months, when funds under management dropped by about €29bn.
A lot of the concerns about a flat yield curve and negative rates have subsided but the problems in the European banking sector remain far from resolved and the German domestic banking sector still remains overbanked with little in the way of positive margins, with yields still predominantly negative at the short end of the yield curve.
The bank is still undergoing a significant restructuring process and while today’s number pretty much came in as expected, the numbers don’t really shed any further light on whether the bank will need to raise extra capital, in order to meet future international bank liquidity rules. There has also been speculation that it could look at spinning off all, or a stake in its asset management unit, which remains a key revenue earner for the business.
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