Deutsche bank investors see no silver lining as results drop

Deutsche Bank AG investors searching for good news after the bank’s third straight annual loss found little to give them optimism.

The Frankfurt-based lender, which had already guided for a slump in trading earnings, surprised with revenue that fell to the lowest in seven years and declines at businesses from transaction banking to equity derivatives. Even cost control—a key feature of CEO John Cryan’s tenure—was worse than expected.

“The results are disappointing again and we don’t see anything encouraging in them, reinforcing our doubts in the bank’s strategy and management,” Michael Huenseler at Assenagon said. “There’s no silver lining.”

Cryan, who again expressed the bank’s dissatisfaction with the results, is still holding out hope for a return to growth in 2018, saying that he expects higher returns with sustained discipline on costs and risks. Client activity picked up in January, he said, pointing to good economic growth in all major global markets. The bank is paying a one-off bonus to its corporate and investment bank as it seeks to strengthen the business, he said.

Investors were unconvinced by Cryan’s pledge for growth, which echoed similar predictions by the bank a year ago. The shares fell as much as 7.1 percent in Frankfurt, the most since March, and were 5.4 percent lower at €13.98 as of 2:13 p.m. local time.

Cryan, 57, is running out of time to show he can lead Europe’s largest investment bank back to strength, after more than two years of scaling back risk, improving controls and settling legacy misconduct cases. The cerebral Brit has defended his strategy, saying two weeks ago that his turnaround plan had entered a “third phase” in which growth should finally be restored.

“What must frustrate investors, in the stock in particular, is the lack of positive news,” said Gildas Surry, a portfolio manager at Axiom Alternative Investments in London, which manages about $1.3 billion, including Deutsche Bank bonds. “FICC down, financing down, costs up, loan provisions down.”

The CEO raised capital in the past year, reorganized the bank’s divisions, prepared the asset management arm for a partial public offering and is working to reintegrate the Postbank consumer lending unit. Yet, several of his shareholders, penalized by the worst performance among European bank stocks in the past year, have signaled they may stop backing him if the numbers don’t improve soon.

To be fair, much of what’s driving the ongoing slump in revenue—a lack of volatility in markets, writedowns tied to the US tax reform—is beyond the control of the CEO, and has driven comparable results at the bank’s Unitred States peers. Goldman Sachs Group Inc.’s fixed-income unit turned in its worst performance in more than a decade last quarter, with a slump of 50 percent.


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