Deutsche Bank Shares Rally As Capital Group Reveals Stake -- WSJ
February 07 2020 - 3:02AM
Dow Jones News
By Simon Clark and Patricia Kowsmann
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 7, 2020).
Deutsche Bank AG got a vote of confidence in its turnaround plan
Thursday as U.S. investor Capital Group Cos. disclosed it has built
a stake in the bank.
Capital Group, which has over $1.9 trillion in assets under
management, is backing Deutsche Bank, with a 3.1% stake, while the
troubled bank undertakes a broad restructuring of its businesses
aimed at making it leaner and profitable.
Deutsche Bank's shares have jumped more than 30% so far this
year, making it the second best performer in the Stoxx 600 index.
The rise is in contrast to recent times when it has dealt with a
series of legal challenges and struggled to convince investors of
its business model.
Like several European banks, Deutsche Bank has been struggling
to make money while interest rates remain low or below zero. The
good news for Europe's most troubled major lender comes as the
industry has showed mixed results in coping with those low rates
and a sluggish economy in reporting fourth quarter earnings.
Executives continue to blame ultralow interest rates for making
the business of lending more challenging. The extent of that
challenge showed up in several banks' financial results. Deutsche
Bank itself swung to a EUR5.3 billion loss ($5.84 billion) in 2019.
In France, BNP Paribas SA and Société Générale SA cut profitability
targets, as did UBS Group AG in Switzerland.
In Spain, Banco Santander SA's net income fell by 17% last year
because of a write-down in the value of its U.K. operations. In
Italy, UniCredit SpA swung to a loss in the fourth quarter, while
in the Netherlands ING Groep reported lower pretax profit for the
quarter than analysts expected.
The European Central Bank reduced its key rate by 0.1 percentage
point to minus 0.5% and revived a bond-buying program in September.
But the ECB, which also supervises the eurozone's largest banks,
has pushed back recently by arguing banks should improve
profitability by cutting costs, investing in technology and through
mergers.
"Banks tend to blame the lack of profitability on external
conditions, pointing to negative interest rate policies," Andrea
Enria, the ECB's chief banking supervisor, said last week. He added
that banks need to sharpen their managerial efforts, deploy
effective strategies on digitization and achieve more radical
improvements in cost efficiency.
Efforts to consolidate have been thwarted across the region by
labor unions, politicians and incomplete European Banking Union
legislation. Most notably, Deutsche Bank failed to merge with
smaller German rival Commerzbank AG last year. The combination was
opposed by labor unions concerned about thousands of job
losses.
After the thwarted merger, Deutsche Bank moved to shrink and
reorganize its global investment bank and focus on serving European
companies and retail-banking customers. It also pledged to slash
costs and cut 18,000 of its approximately 92,000 jobs by 2022.
BNP Paribas cut its profitability goal for 2020, saying
Wednesday that monetary policy changes had "led to a more
unfavorable interest rate environment than anticipated at the
beginning of 2019." The Paris-based bank now expects a return on
tangible equity -- a key measure of profitability -- of 10% this
year, down from previous expectations of over 10.5%.
Société Générale said Thursday it is unlikely to deliver a
return on tangible equity of 9% to 10% for the year, which it had
targeted.
One bright spot for BNP Paribas was a sharp uptick in trading
revenue in its investment bank where it performed better than its
European peers and posted trading gains in line with U.S. banks
including Citigroup Inc. and Goldman Sachs Group Inc.
UBS missed a target to make around 15% on capital, with a 12.4%
return. Its new target is to make between 12% and 15% through the
2020-2022 cycle. UBS Chief Executive Sergio Ermotti said Jan. 21
the bank needed to lower its targets because of persistently low or
negative interest rates.
ING net profit fell 31% in the fourth quarter, which Chief
Executive Ralph Hamers described as "challenging" because of low
interest rates. Provisions for bad loans rose 77% to EUR428
million.
Another positive was banks including BNP Paribas, Deutsche Bank,
UniCredit and Santander reporting improved capital levels.
--Giovanni Legorano and Pietro Lombardi contributed to this
article.
Write to Simon Clark at simon.clark@wsj.com and Patricia
Kowsmann at patricia.kowsmann@wsj.com
(END) Dow Jones Newswires
February 07, 2020 02:47 ET (07:47 GMT)
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