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Deutsche Bank reveals fall in profits as markets await stress test results Deutsche Bank reveals fall in profits as markets await stress test results
(about 2 hours later)
Profits at Deutsche Bank fell sharply in the first half of the year, Germany’s biggest lender has revealed, as the markets await the results of health checks on EU banks which could shed light on its financial strength.Profits at Deutsche Bank fell sharply in the first half of the year, Germany’s biggest lender has revealed, as the markets await the results of health checks on EU banks which could shed light on its financial strength.
Deutsche’s chief executive said he may have to accelerate cost-cutting measures after revealing pre-tax profits in the second quarter of the year had fallen 67% and after tax had collapsed by 98% to €20m. Deutsche’s chief executive said he may have to accelerate cost-cutting measures after revealing pre-tax profits in the second quarter of the year had fallen 67% and after tax had collapsed by 98% to €20m (£17m).
“We have continued to de-risk our balance sheet, to invest in our processes and to modernise our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring,” said John Cryan, the Briton appointed to turnaround the German bank’s fortunes. Related: European banks prepare for possible shockwaves from stress test results
In the first half of the year, its profits fell to €987m from €2.7bn. The figures were better than expected and the shares rose 3%. “We have continued to de-risk our balance sheet, to invest in our processes and to modernise our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring,” said John Cryan, the Briton appointed to turn around the German bank’s fortunes.
The figures are published ahead of the publication of the latest round of stress tests on EU banks – the outcome of which will be known at 9pm London time on Friday – with much of the focus on Italy, particularly Monte dei Paschi di Siena (MPS), the world’s oldest bank. The tests assess banks’ ability to withstand economic shocks such as a stock market crash. In the first half of the year, its profits fell to €987m from €2.7bn but the results were better than expected and the shares rose 3%.
But analysts at Barclays said Deutsche Bank was “potentially in regulators’ cross-hairs too”. According to their calculations Deutsche was second only to MPS when it re-ran this year’s stress tests against the last ones in 2014. The new figures are published before the publication of the latest round of stress tests on EU banks – the outcome of which will be known at 9pm London time on Friday – with much of the focus on Italy, particularly Monte dei Paschi di Siena (MPS), the world’s oldest bank. The tests assess banks’ ability to withstand economic shocks such as a stock market crash.
Unlike in previous years – since the financial crisis in 2008 stress tests have been run in 2011 and 2014 – there is no pass or fail hurdle rate for the 51 banks being tested. The Barclays analysts, however, compared their estimated results for the 2016 tests with the pass rate of 5.5% used two years ago. On one reading, only MPS would be vulnerable. But, they said the market might look for capital strength closer to 7.5%. But analysts at Barclays said Deutsche Bank was “potentially in regulators’ crosshairs, too”. According to their calculations, Deutsche was second only to MPS when it re-ran this year’s stress tests against the last ones in 2014.
“This would imply that Deutsche Bank, BNP Paribas and UniCredit are potentially vulnerable too,” the Barclays said. Unlike in previous years – since the financial crisis in 2008 stress tests have been run in 2011 and 2014 – there is no pass or fail hurdle rate for the 51 banks being tested. The Barclays analysts, however, compared their estimated results for the 2016 tests with the pass rate of 5.5% used two years ago. On one reading, only MPS would be vulnerable. But they said the market might look for capital strength closer to 7.5%.
Deutsche Bank’s closely watched capital ratio, a measure of its financial strength, rose slightly to 10.8% at the end of June – and will rise further once the sale of a Chinese business in completed. The bank is €25bn ahead of its capital requirements for 2019. “This would imply that Deutsche Bank, BNP Paribas and UniCredit are potentially vulnerable, too,” the Barclays said.
The bank – described by the International Monetary Fund as the riskiest of all the big banks – was caught up the stock market rout at the start of the year when its shares were pummelled and it was forced to issue statements about its financial health. On Wednesday, Cryan said he was “satisfied with the progress we are making.” Deutsche Bank’s closely watched capital ratio, a measure of its financial strength, rose slightly to 10.8% at the end of June and will rise further once the sale of a Chinese business in completed. The bank is €25bn ahead of its capital requirements for 2019.
Cryan is aiming to tackle a number of regulatory investigations facing the bank this year, including one with the US Jepartment of Justice with which Deutsche has now started talks over the way it sold mortgage bonds in the run-up to the 2008 banking crisis. The bank – described by the International Monetary Fund as the riskiest of all the big banks – was caught up the stock market rout at the start of the year when its shares were pummelled and it was forced to issue statements about its financial health. On Wednesday, Cryan said he was “satisfied with the progress we are making”.
The bank, which employs 11,000 in the UK, included a statement about the impact on its operations as a result of the vote for Brexit. Cryan is aiming to tackle a number of regulatory investigations facing the bank this year, including one with the US justice department with which Deutsche has started talks over the way it sold mortgage bonds in the run-up to the 2008 banking crisis.
Deutsche bank, which employs 11,000 in the UK, included a statement about the impact on its operations as a result of the vote for Brexit.
“Following the UK referendum on EU membership, we do not currently believe significant changes will be required to our current UK structure or business model in the short term as a result of the referendum.” the bank said.“Following the UK referendum on EU membership, we do not currently believe significant changes will be required to our current UK structure or business model in the short term as a result of the referendum.” the bank said.
The Barclays analysts said the stress tests results may “act as a catalyst for finding a way forward” with the bad debts hanging over Italian banks and MPS in particular.The Barclays analysts said the stress tests results may “act as a catalyst for finding a way forward” with the bad debts hanging over Italian banks and MPS in particular.
“The absence of a solution for Monte dei Paschi would likely incur a severely negative market reaction,” Barclays said.“The absence of a solution for Monte dei Paschi would likely incur a severely negative market reaction,” Barclays said.