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Last updated: January 20, 2014 2:46 pm
Deutsche Bank’s co-chief executive has vowed to re-invest in the German lender’s fixed income trading business after the unit lost out to stronger US rivals in the fourth quarter, dragging the bank into a large net loss.
News that a slowdown in the debt markets, plus further costs for litigation and restructuring, had battered its profits sent shares in Germany’s largest lender down more than 5 per cent to €37.12 in afternoon Frankfurt trading on Monday.
Anshu Jain, co-chief executive alonsgside Jürgen Fitschen , pledged to defend the bank’s fixed income sales and trading operations – despite a sharp revenue slowdown in the second half of 2013 as investors grappled with the US Federal Reserve’s decision to slow its monetary stimulus.
“We see fixed income as a core franchise at Deutsche Bank and remain committed to it,” Mr Jain said, adding that Deutsche needed would seek to ramp up its US operations to counter the slump. “We need to re-invest there now.”
Deutsche is much more exposed to fixed income than most of its global peers, with 73 per cent of its trading revenues being generated in this area last year.
The German lender late on Sunday announced a net loss of €965m for the last three months of the year as it rushed out its full-year numbers 10 days earlier than expected. News of a potential profit warning emerged last week.
Analysts had expected net income of nearly €700m in the fourth quarter, according to an average polled last week by Bloomberg.
Deutsche was also hit by higher litigation and restructuring costs, with a loss in its non-core unit of €1.1bn in the fourth quarter. The lender is in the process of slashing a further €250bn from its balance sheet as it races to deleverage amid an environment of increasing regulation for the banking sector.
Cost cuts are only keeping pace with revenue declines at German bank as it waits for the blessed season of revenue growth to come . . .
Revenues at the investment bank arm fell 27 per cent in the fourth quarter from the same period the previous year, driven by a 31 per cent decline in fixed-income trading.
The bank’s net revenues for 2013 fell 5 per cent to €31.9bn. But the fall in its investment banking arm was more pronounced, with a 12 per cent dip in net revenues to €13.6bn.
Mr Fitschen and Mr Jain said: “2013 was the second successive year in which we have invested in the bank’s future growth and in further strengthening our controls while addressing legacy issues. These factors impacted our financial results.”
Deutsche’s net loss in the fourth quarter was not as bad as its results in the same period of 2012, when the bank revealed a net loss of €2.2bn, driven by writedowns and increased litigation provisions.
The bank has recently come under fire from German regulator BaFin for its internal handling of the Libor scandal.
An internal investigation at the bank cleared executive board members of any involvement with the affair. But a BaFin report from August that was leaked to German media named the handling of three individuals with senior positions at the bank, Alan Cloete, Richard Walker and Andrew Procter, as examples of the board’s failure to instigate cultural change. None of the three individuals has been accused of any wrongdoing.
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