FRANKFURT: Germany’s biggest lender Deutsche Bank will face renewed probing on Thursday, as investors pore over its third-quarter results after being hit with a multi-billion-dollar fine by the US Department of Justice.
“It will be important to keep an eye on growth in provisions for legal risks,” Equinet analyst Philipp Haessler told Agence France-Presse.
News of a $14-billion demand from the DoJ over Deutsche’s role in the subprime mortgage crisis sent shares in the bank plunging to a historic low of 9.90 euros ($10.75) in late September and reawakened fears for the wider European banking sector.
The figure is far higher than the 5.5 billion euros of provisions Deutsche has set aside to cover some 8,000 outstanding legal cases worldwide.
US banks have settled for far less in similar cases, and a source told Agence France-Presse in late September that Deutsche was in talks on bringing the fine down to around 5.4 billion euros, although the final figure could still change.
Deutsche shares have climbed back to their prior level of around 13 euros — suggesting some confidence has been restored — but it is still down about 40 percent from the start of the year.
In June the International Monetary Fund labelled the bank “the most important net contributor to systemic risks in the global banking system”.
Analysts surveyed by Factset predict that the bank will book a fresh loss of around 950 million euros in the third quarter.
Besides the subprime cases, markets will be watching for signs that chief executive John Cryan’s restructuring is beginning to bear fruit just over a year into his tenure, with the flagship investment banking arm in particular focus.
Cryan has withdrawn from a broad swathe of activities and regions, and cut resources at the investment bank.
Strong results from US rivals like Goldman Sachs and JPMorgan Chase have put pressure on Deutsche to show it can defend its share of the market.
“It will be interesting to see whether Deutsche Bank has managed good results here, or whether the restructuring meant it couldn’t perform so strongly,” Nord/LB bank analyst Michael Seufert said.
Other headwinds for Deutsche include low interest rates sapping the profitability of its traditional banking business, increased regulation and higher capital requirements since the financial crisis. Doubts also remain over a return to profitability after a seven-billion-euro loss in 2015.
That year saw Deutsche waive dividend payments — a step it had not resorted to even in the depths of the financial crisis.
There are also questions over the future of German subsidiary Postbank, which Cryan has yet to sell or float on the stock market as hoped.
After a second quarter in which profits fell 98 percent to just 20 million euros, Cryan in July said the restructuring might have to become “more ambitious” if weak economic conditions persisted.
The British CEO’s plan already calls for the slashing of around 9,000 jobs worldwide and the closure of 200 branches in home market Germany.