Deutsche's Results Clean-Up Is Good; Future Not So Much

Deutsche Bank’s annual results show that Germany’s largest financial firm has done a good job fixing old problems. That doesn’t mean it has a plan for the future.
John Cryan is getting praise, but there's still plenty more to do. Soure: Bloomberg [M]

You have to hand it to Deutsche Bank Chief Executive John Cryan: The man charged with cleaning up Germany’s largest financial institution has delivered.

The bank’s largest legal risk, a dispute in the U.S. over questionable mortgage securities in the 2008 crisis, has been set aside. He’s also been partially successful in settling the bank’s most uncertain legal case to date, involving questionable stock trades in Russia.

With that, there really aren’t any legal cases left that pose an existential threat to the bank. And even with the settlement of these legacy risks, the bank still managed to strengthen its capital base and bolster its liquidity last year.

All of this should be counted as an enormous success that will free up the bank’s managers and employees to focus on the future – that is now the most urgent task.

After all, what you won't find in the bank’s annual results released Thursday morning is the answer to a simple question: How is the bank going to earn enough money in the future?

The bank’s profitability situation makes for more pessimistic reading.

Deutsche Bank’s loss of €1.4 billion last year is of course largely the result of setting aside its legal risks, as well as a restructuring of its operations. That’s not really a problem in and of itself, since 2016 was always seen as a year of setting aside old problems.

But the bank’s profitability situation makes for more pessimistic reading. Excluding one-time effects, the bank earned less than the previous year even in stable areas like transaction banking, its business with private clients and in asset management. This is where the effect of low interest rates is most noticeable, which the bank was unable to counter with a growth in revenue.

By contrast, there’s some light at the end of the tunnel in corporate and investment banking as well as in stock trading, which counts as one of the bank’s traditional strengths. In both areas, the bank at least earned more in the fourth quarter than in the same period the previous year.

That won’t be enough to convince skeptical investors over time, and explains why it’s so critical for Deutsche Bank to answer the lingering questions about its long-term business model.

Those who like to see the glass half full would put this differently: A bank that only a few months ago was fighting for its very existence is now being asked about its plans for the future. That is a major step forward.


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