Forty days and 40 nights. Jürgen Fitschen and Anshu Jain have barely settled into their jobs as co-chief executives of Deutsche Bank and the German universal bank is already releasing profit warnings. Doing so minutes before markets close never goes down well with investors. They marked down Deutsche’s shares 4 per cent on Wednesday.
That the heavens opened in the quarter is not in doubt: results from peers with investment banking arms show as much. But it has also been tough for Deutsche’s domestic retail banking, asset management and wealth units. The culprit was not falling revenues – down only 6 per cent from a year ago – but higher costs. The 5 per cent increase was mostly caused by the costs of its investment bank being dollar- and pound-denominated. It may be that the new co-CEOs have front-loaded some costs to set a new base. Bad loan provisions also hurt.
But the earnings trend and outlook for investment banking offer scant comfort on Deutsche’s ability to generate capital organically. It says that its core tier one ratio of 10.2 per cent would fall to just 7.2 per cent by year-end assuming full adoption of Basel III. That assumes the bank can shrink risk-weighted assets by €105bn by then, as it claims.
That is ambitious, even assuming a swift capital realisation from, say, the sale of its asset management arm. About €20bn in new equity would put Deutsche’s capital position beyond doubt, Berenberg Bank reckons. True, dilution would be significant. But Credit Suisse took the plunge, issuing convertible notes to anchor investors.
Is a more radical solution required? The bank’s shares are languishing at 0.5 times tangible book value. Drastic cost-cutting might help. No doubt, former Citigroup boss Sandy Weill would argue that Messrs Fitschen and Jain should contemplate what their dual roles ultimately symbolise.
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