DBK Deutsche Bank AG

By Jenny Strasburg and Pietro Lombardi 

Deutsche Bank AG's global overhaul has taken another big bite, with the German lender reporting a second consecutive quarterly loss and broad revenue declines as it exits businesses and absorbs restructuring costs.

Shares in the bank were down 6.8% in Wednesday morning trading, making it the weakest performer in the Stoxx Europe 600 index.

The bank Wednesday reported a EUR832 million ($924 million) third-quarter net loss, including a EUR1 billion pretax loss in the new division where it has stashed businesses and positions it is selling or winding down, called the Capital Release Unit.

Overall net revenue fell 15% to EUR5.3 billion. All but one of the bank's four core divisions, the corporate bank, suffered revenue declines.

The results missed expectations, according to a consensus forecast provided by FactSet. Analysts had expected a third-quarter loss of about EUR772 million, while revenue had been forecast at EUR5.53 billion, according to FactSet.

The results reflect the first quarter of post-overhaul reality. Germany's biggest lender faces years of challenges cutting costs while maintaining enough profit to pay for its restructuring, without depleting too much of the capital buffer it needs to absorb potential losses and satisfy regulators.

Deutsche Bank said its four core business divisions, including its investment- and corporate-banking units and asset management, were all profitable. Excluding the so-called bad-bank loss, the core operations collectively had a pretax profit of EUR353 million in the third quarter.

Chief Executive Christian Sewing said the bank's transformation is on track, with a stable capital cushion, loan growth and increase in assets being managed for clients. The bank said it is also on track to meet its 2019 cost target.

The loan growth volume could concern investors cautious about eroding soundness in the market. Deutsche Bank's finance chief, James von Moltke, told reporters on a conference call that the increase was consistent with the bank's strategy, and that it is carefully gauging credit quality. He noted Deutsche Bank's relatively stable provisions for loan losses, adding that those provisions are likely to go up in future quarters, but calling that an anticipated "normalization."

The bank said it is on track to meet its 2019 cost target, though some analysts pointed out that third-quarter costs were slightly higher than expected. The lender's head count has fallen below 90,000 for the first time since it acquired German retail-banking business Postbank, it said. In early July, Deutsche Bank unveiled a big revamp including around 18,000 job cuts over several years and a retreat from some of its global trading ambitions.

In late July, it reported a big, but expected, second-quarter net loss tied to restructuring costs. Drops in trading and investment-banking revenue didn't help. That EUR3.15 billion quarterly loss included a EUR3.4 billion restructuring charge.

Executives still expect Deutsche Bank to return to profitability or at least break even next year, Mr. von Moltke said Wednesday.

In the reorganized investment bank, overall revenue fell 5% in the third quarter, with the fixed-income sales and trading revenue decline offset by a 20% increase in revenue from origination and advisory.

The fixed-income pain came largely from interest-rate trading and emerging-markets debt, including losses in Argentina that Mr. von Moltke declined to quantify. He called the fixed-income results a "mixed picture" but said the bank is happy with areas like currencies trading and predicts the overall business will stabilize.

Corporate-bank revenue was up 6%, including an 8% increase in transaction-banking revenue. Overall private-bank and asset-management revenue were down 3% and 4%, respectively. DWS, the asset-management arm, attracted net inflows.

Mr. Sewing has said the upfront restructuring pain will make Deutsche Bank leaner and more focused on serving European companies at home and abroad. The bank has largely exited from equities trading and pulled back from other money-losing operations with the aim of focusing on long-term strengths, such as managing companies' cash and financing trade.

Mr. von Moltke told reporters that nothing in the results since July has led the bank to consider closing more businesses or lopping off more products than it already has planned or announced.

But executives have also acknowledged that investors have heard many restructuring promises before, only to be disappointed when cuts failed to bring stability. The bank, which is almost 150 years old, has had years of senior management turmoil and lost top bankers. Investors aren't easily convinced that the latest plan will succeed, either, analysts say.

Banks globally are suffering from low or negative interest rates, with that prolonged weight on profits exacerbating Deutsche Bank's already low-margin retail market in Germany.

Write to Jenny Strasburg at jenny.strasburg@wsj.com and Pietro Lombardi at Pietro.Lombardi@dowjones.com

(END) Dow Jones Newswires

October 30, 2019 06:06 ET (10:06 GMT)

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