Deutsche Bank Profit Plunges Amid Turnaround Effort -- 3rd Update

By Jenny Strasburg

Deutsche Bank AG said Wednesday that its second-quarter net income fell 98% from a year earlier, hurt by weaker performances in trading, investment banking and other core areas.

The German lender said net income fell to EUR20 million ($22 million) from EUR818 million a year earlier, while net revenue dropped 20% to EUR7.4 billion. The bank beat average net-income forecasts of analysts, whose expectations had ranged widely from a quarterly loss of more than EUR1 billion to a profit of more than EUR500 million.

The bank's shares fell 5.3% Wednesday morning.

Chief Executive John Cryan said in a statement that the bank is making progress in a multiyear turnaround, but warned that if weak market conditions persist, it "will need to be yet more ambitious in the timing and intensity of our restructuring."

Deutsche Bank's shares have dropped 45% this year, compared with a 27% decline on the Stoxx Europe 600 banks index. Investors have sold European bank shares since the U.K. voted June 23 to leave the European Union.

The Frankfurt-based bank has been hit harder than most. It is cutting costs and clients and trying to satisfy new, more-stringent capital requirements over the next three years. Its turnaround strategy has eaten into trading and investment-banking revenue, and investors' concerns about the adequacy of its capital cushion have persisted.

The bank also has been trying to settle regulatory investigations expected to result in big fines, another uncertainty for investors.

Low interest rates and economic uncertainty stemming from Brexit weighed on the lender's biggest businesses last quarter. Revenue fell year-over-year in all four of Deutsche Bank's business divisions, including asset management.

The worst year-over-year revenue decline was in global markets, the bank's sprawling securities-trading operation and its biggest unit by revenue. That division's second-quarter revenue declined 28% from the year-earlier period. Within the business, overall sales and trading revenue fell 23% during the quarter from a year earlier.

The lender said some of the declines were rooted in decisions to shrink Deutsche Bank's global footprint in order to cut risks and leverage and meet tougher regulatory requirements. Expenses related to job cuts also weighed on results.

In July 2015, Mr. Cryan, a former banker and finance chief of UBS Group AG, took over as co-chief executive of Deutsche Bank, replacing Jürgen Fitschen and Anshu Jain. Mr. Fitschen stayed on as co-CEO until May and remains an adviser. Mr. Jain left last year. Mr. Cryan is now sole CEO.

Deutsche Bank's common equity Tier 1 ratio, a key measure of high-quality capital, improved slightly from the first quarter, to 10.8% as of June 30, but the ratio is still down from its year-ago level of 11.4%.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

(END) Dow Jones Newswires

July 27, 2016 04:12 ET (08:12 GMT)

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