The latest confirmation that Germany’s troubled banking giant Deutsche Bank is unable to navigate the troubled waters of NIRP came on Wednesday when the bank announced that its second-quarter net income fell 98% from a year earlier, hurt by weaker performances in trading, investment banking and other core areas. The lender said net income tumbled to €20 million ($22 million) from €818 million a year earlier, modestly better than the €22mm loss expected, while net revenue dropped 20% to €7.4 billion.
After rebounding modestly on the beat, the bank’s shares fell tumbled 5% on Wednesday morning, their lower level in 2 weeks; today’s decline has dragged DB stock 45% lower in 2016, making it one of Europe’s worst performers YTD (the Stoxx 600 is down 27% in 2016).
As the WSJ notes, the Frankfurt-based bank has been hit harder than most. It is cutting costs and clients and trying to satisfy new, more-stringent capital requirements over the next three years. Its turnaround strategy has eaten into trading and investment-banking revenue, and investors’ concerns about the adequacy of its capital cushion have persisted. The bank also has been trying to settle regulatory investigations expected to result in big fines, another uncertainty for investors.
Chief Executive John Cryan said in a statement that the bank is making progress in a multiyear turnaround, but warned that if weak market conditions persist, it “will need to be yet more ambitious in the timing and intensity of our restructuring.”
Investors were unimpressed, and the shares now trade for two thirds less than their tangible book value, a steeper discount than even during the depths of the financial crisis.
What is more troubling is that as Bloomberg adds, the worst is yet to come.
While debt trading revenue climbed 22 percent at the top U.S. investment banks in the quarter, Deutsche Bank’s fixed-income trading revenue fell 19 percent. In foreign exchange, performance was flat, a sign that restructuring is preventing the bank from getting the most out of the market action.
Another problem for the CEO is that the bank’s cost-cutting effort is also lagging compared to US peers: while it is having some positive impact – expenses fell 5% from the year-earlier period – with revenue shrinking, the cost-income ratio remains stubbornly high at 91%.
Finally, the biggest problem for DB remains its massive balance sheet. Morgan Stanley analysts calculated that Deutsche Bank has a €9 billion capital hole to fill by 2018, and that’s not including damage caused by future litigation costs, which considering DB’s record of pervasive capital rigging, are sure to rise.
Full article: Deutsche Bank Profit Plunges 98% And The Worst Is Yet To Come (ZeroHedge)