As we pointed out earlier, Germany’s biggest bank still faces serious doubts on whether it will need to raise billions of euros of extra capital and slash costs drastically to strengthen its balance sheet and boost profits. Among the entities rumored to provide backstop capital are various middle-eastern funds as well as rumored Chinese investors.
Normally, similar reports of heightened regulatory scrutiny would lead to a brike selling in any named bank; however perhaps because Deutsche Bank has already been through hell and back over the past few months, this latest news will hardly come as a shock to investors.
Meanwhile, Deutsche Bank is set to announce earnings tomorrow, in which it is expected to announce a lower net loss of around €610 million, versus a massive €6 billion loss one year ago, much of which stemmed from write-downs on investment-banking and other assets. At this time last year, Deutsche Bank was kicking off its new, multi-year overhaul under Chief Executive John Cryan. This quarter’s loss is expected to be largely due to another large major litigation provision ahead of a potential settlement with the DoJ. Analysts are split on precisely how much the bank will set aside, but their forecasts range from €250m to €1.5bn according to a consensus report compiled by the bank. Analysts also expect third-quarter revenues to be €7.1 billion, according to a consensus of 17 analysts’ estimates compiled by the bank. That compares with €7.3 billion a year ago.
Prolonged uncertainty around Deutsche Bank’s capital position-exacerbated by the litigation questions–have fueled persistent questions about whether the lender might be forced to sell shares, shed businesses it has planned to keep, or accelerate cost-cutting plans.
Keys to Deutsche Bank’s plans for building its capital cushion include divesting its German retail-banking division called Postbank. That plan has proved more difficult than expected, and investors want to know the latest-especially if executives have changed their minds. Investors will also want to know when the bank is going to see the cash it is expecting from selling its roughly 20% stake in Chinese bank Hua Xia. The roughly $4 billion deal was announced in December 2015, but the proceeds have taken longer to arrive than executives expected.
Meanwhile, in an attempt to cut costs, DB has undergone on a major layoff spree and, as reported yesterday, is considering paying banker bonuses in compensation other than cash.