Reports

Deutsche Reports Loss; US Tax Change Hits Result

Tom Burroughes, Group Editor, London, 2 February 2018

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Germany's largest lender has made a loss in recent years, hit by a number of forces and remained in the red in the fourth quarter of 2017. US tax changes caused some of the loss this time around.

Deutsche Bank today reported a loss before income taxes in the fourth quarter of 2017 of €1.3 billion ($1.63 billion), narrowing from €2.4 billion in the same period a year ago. Results were affected by weak revenues and the costs of restructuring and a merger. US tax changes also hit the bank’s results, as has been the case with its peers. And its annual loss of €500 million was the third such annual loss in a row.

The banking group has struggled with results in the past few years and has disposed of certain businesses and attempted to slim down and cut costs. 

Germany’s largest bank said the reduction in its Q4 loss was partly caused by a “considerable reduction” in litigation and impairment charges. “The fourth quarter 2017 result reflected a weak revenue environment together with a negative impact from the agreement to sell a portion of the retail business in Poland and restructuring charges mainly related to the planned merger of Private & Commercial Clients Germany and Postbank,” it said in a statement.

As with a number of other major banks, Deutsche Bank said recently enacted US tax changes, such as the one-off charge on repatriation of earnings to the US as part of sweeping US tax cuts, and other changes, caused a one-off cost to the bank. The Frankfurt-listed lender said it recognised a non-cash charge of approximately €1.4 billion arising from a valuation adjustment on its US Deferred Tax Assets.
When the DTA-related charge is allowed for, Deutsche Bank would have earned full-year net income of around €900 million, against a net loss of €1.4 billion in 2016.

In Q4, the lender reported a net loss of €2.2 billion, mainly driven by the US tax issue, up from a net loss of €1.9 billion in the prior year quarter. Deutsche Bank said the cuts to US federal corporate tax to 21 per cent from 35 per cent is likely to boost net income in future.

Private and commercial banking
Deutsche Bank said its Private & Commercial Bank “offset pressure on interest income”. On a reported basis, revenues were lower year-on-year, reflecting a loss related to the agreement to sell a portion of the Polish business and the non-recurrence of 2016 revenues from Hua Xia Bank and Private Client Services. Adjusting for these effects, revenues were essentially stable both in the quarter and year as growth in revenues from loans and investment products offset pressure on deposit revenues from low interest rates. It added that preparations for the merger of Private & Commercial Clients Germany and Postbank are on schedule

Asset management
Deutsche Asset Management attracted “significant inflows” in 2017, taking in full-year 2017 net money inflows of €16 billion, reversing the negative trend of 2016. Deutsche Asset Management, now globally rebranded DWS, has a market share of more than 26 per cent in German mutual funds, also capturing 27 per cent of new fund sales during the year.

Reported revenues declined in both the fourth quarter and full year due to the non-recurrence of revenues from Abbey Life which was sold in 2016. Adjusting for this effect, full-year revenues were up 2 per cent on higher management fees, while fourth-quarter revenues were down 2 per cent due to lower performance fees.

Other details
Strategic business disposals across the whole Deutsche Bank group cut fourth-quarter net revenues, falling 19 per cent to €5.7 billion. When such factors are stripped out, fourth-quarter revenues would have fallen 10 per cent, drawn down by low volatility and client activity in financial markets and continuing low interest rates.

The bank said it has cut non-interest costs “substantially”, due to the lower financial burden of legacy items at the business. Full-year non-interest costs fell 16 per cent to €24.6 billion.
Deutsche Bank said it has set a target this year for costs to come in at €23 billion this year, up a billion from the previously targeted amount.

The bank’s fully loaded CRR/CRD4 Common Equity Tier 1 (CET 1) ratio rose – a measure of such a firm’s financial strength – stood at 14.0 per cent at the end of the quarter, up from 13.8 per cent at the end of the third quarter. 

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