Deutsche Bank AG (DBK), a German investment bank and financial services company, reported on Thursday, January 30, 2020, that the bank occurred a full-year net loss of 5.3 billion euros ($5.8 billion) due to its transformation project.
DBK, that ranked 17th World’s largest bank based on the total assets valuation as of April 2018, has been putting a halt in its certain operations over the last six months as part of its major restructuring program. The bank had a remarkable recovery of the transformation cost due to its revenue raised in the fourth quarter (Q4) of the fiscal year 2019.
Total Cost Incurred in 2019
The German bank had undergone a restructuring of its policies and resizing of the company’s workforce in mid-2019 to meet the expectation of the cost recovery in the next two years.
As reported by CNBC, the bank announced its restructuring projects in July 2019 which included putting a restriction on its global equities sales and trading operations, rolling back its investment banking division, and cutting off 18,000 jobs with the aim to achieve its adjusted cost base around 20% by 2022. As a part of resizing the workforce, the bank cut off its group headcount by over 4,100 in 2019.
According to Reuters poll, analysts were expecting the bank had lost a 5.1 billion euro for the fiscal year 2019 with around 1.5 billion euros net loss for the fourth quarter (Q4) against the analyst’s expectation of 1 billion euros. On Thursday morning, Deutsche Bank reported to CNBC that the 2019 net loss was “entirely driven by transformation-related effects.”
As CNBN described the bank’s report of the cost estimation, “A 2.6 billion pre-tax loss to the absorption of transformation charges of 1.1 billion euros, goodwill impairments of 1.0 billion euros and restructuring and severance expenses of 805 million euros. The full-year loss additionally included transformation-related deferred tax asset valuation adjustments of 2.8 billion euros.”
However, DBK’s Chief Financial Officer (CFO), James von Moltke told CNBC Thursday, “Our revenues in the investment bank were up 22% year-on-year excluding specific items, which demonstrates that we also participated in the generally better conditions in the fourth quarter.”
Affirmative Comeback after the Restructuring
Despite the increase of the cost expenses, the bank had achieved a significant comeback at the end of the Q4 of the fiscal year which pointing out that it had “recognized 70%” of the anticipated cumulative costs to achieve its transformation strategy between 2019 and 2022.
As reported by CNBC, “It (Bank) had achieved the 2019 full-year adjusted cost target of 21.5 billion euros, excluding transformation charges and the fourth-quarter expenses incurred by the transfer of the bank’s Prime Finance platform to BNP Paribas.”
Citing the momentum recovery in the Q4, the bank’s CFO told CNBC, “It was gratifying to see that momentum support our businesses and clients come back to the franchise.” One significant aspect of the bank was that it was able to maintain its existing common equity tier 1 (CET1) ratio despites the heavy cost incurred for its restructuring.
The bank’s CEO, Christian Sewing said in a statement Thursday that the bank’s CET1 ratio showed a stabilizing revenue. Sewing added, with the condition of ‘cost discipline,’ the bank has the confidence to “return to growth’ comeback regarding its finance transition and resources.
Citing “ahead-of-target risk-weighted asset reduction by the Capital Release Unit,” DBK declared that the bank’s CET1 ratio gained a slight increase at 13.6% at the Q4 from 13.4% in the previous quarter. As CNBC, “with fixed income and currency (FIC) sales and trading revenues made a tentative comeback in the fourth quarter, posting revenues of 1.2 billion euros, up 31%.”
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