Deutsche Bank fell further behind its Wall Street rivals in 2016, lagging their strong rebound in bond trading in the last three months of the year and increasing pressure on CEO John Cryan ahead of an expected strategy update this spring.
Germany's flagship lender posted on Thursday a net loss of 1.9 billion euros (USD2.1 billion) in the final quarter of 2016 as legal costs for past misdeeds weighed heavily on results.
Its shares fell more than 5 percent, the biggest losers among German blue-chip stocks. Analysts had expected the bank to post a loss of 1.16 billion euros.
"Our strategy will not fundamentally change," Cryan told a news conference, adding the bank would continue to respond to changes in global markets and regulation.
This could include withdrawing from more markets and client groups, but not another round of job cuts, he said.
"Our expectation is that we will be profitable this year," Cryan said, adding it was too early to say when dividend payments would be resumed.
The bank started the year well, with its cash cow debt trading unit seeing revenue rise 40 percent year-on-year in January, he said.
But some investors want more detail on the future course of the bank. "Investors want to know where the bank is heading. It is important that an adjustment of the strategy happens fast," said fund manager Helmut Hipper from Union Investment.
'FRANCHISE DAMAGE'
Revenues at Deutsche's bond trading division were up 11 percent in the fourth quarter as it benefited from a surge in business across interest rate products, commodities and foreign exchange (FICC), as investors reacted to Donald Trump's surprise victory in the U.S. presidential election.
But it lost market share to Wall Street banks, some of which more than doubled bond revenues, in part as the German lender pared back its investment bank to reduce risk, cutting products and ties with thousands of clients.
"Overall, this is a mixed set of results ... with evidence of franchise damage," Goldman Sachs analysts said in a note.
Upcoming new bank regulations will determine whether Deutsche Bank can afford to reintegrate retail arm Postbank, which it had put up for sale to lift its capital ratios, but would prefer to keep. They will also determine whether Deutsche floats its asset management arm to free up capital.
Finance chief Marcus Schenck said the bank would decide on the future of Postbank after overhauling it during the course of this year, while Cryan added he had nothing to announce at the moment regarding the asset management unit.
Some investors are sceptical about a potential flotation of that business. "We do not think that the sale of a minority stake of the asset management ops would help lift the capital basis much," said Pascal Boeuf from Woodman Asset Management.
BIG RISK
The bank's strategy is a concern not just to shareholders, but also to Germany after fears of mounting fines last year prompted speculation it could even need a state bailout.
With a balance sheet of 1.6 trillion euros, Deutsche was labelled last year as the riskiest big global bank by the International Monetary Fund and the organisation's head, Christine Lagarde, took the unusual step of questioning the bank's business model, urging it to "decide what size it wants to have".
Cryan launched a sweeping revamp in October 2015, aiming to slash costs by cutting staff, overheads and selling off non-core businesses.
But more than a year on, with staff numbers down only 1 percent, management is being forced to find new ways to increase profitability. The lender vowed on Thursday to bring down its cost base to less than 22 billion euros in 2018 from 24.7 billion in 2016.
It had already slashed 2016 bonuses, helping bring down total remuneration by 11 percent.
While Deutsche Bank has drawn a line under some major legal headaches, earmarking 4.7 billion of total litigation reserves of 7.6 billion euros for settlements such as over the sale of toxic mortgages and sham Russian trades, it is not yet out of the woods.
New civil lawsuits have emerged, forcing Deutsche to hike provisions for possible future legal action - so-called contingent liabilities - by 38 percent to 2.2 billion.
"Whilst 2015 and 2016 were peak years for litigation, 2017 continues to be burdened by resolving legacy matters," the bank said.
In equities trading, Deutsche Bank saw revenues decrease in the quarter as hedge fund activity retreated, while revenues from corporate and investment banking edged up, despite the bank missing out on advising clients on some large deals.
(USD1 = 0.9266 euros)
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