Deutsche Bank Returns to Profit, Even as Regulatory Pressures Continue

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A Deutsche Bank branch in Berlin. The bank said on Thursday that it was making progress on its efforts to turn around the business after beginning a broad shake-up last year.

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Sean Gallup/Getty Images

LONDON — For Deutsche Bank investors who have been fretting about its weak performance and regulatory troubles in the United States, the lender has finally offered some modest good news.

The bank said on Thursday that it had returned to a profit in the third quarter and was making progress in its efforts to turn around the business. The results come about a year after the bank began a broad shake-up to improve its lagging performance by cutting jobs, stripping away wasteful businesses and simplifying its structure.

But John Cryan, the chief executive, warned that the operating environment had grown increasing difficult. Low interest rates have weighed on Deutsche Bank’s retail banking performance in the past year, and uncertainty in financial markets is hurting trading and advisory activity.

Regulators are also looking into raising capital requirements, which means lenders must store more of their money to provide a cushion against adverse developments instead of putting it to work.

“The macroeconomic and geopolitical outlook has worsened over the past year,” Mr. Cryan said.

For the three months ended Sept. 30, Deutsche Bank reported a profit of 278 million euros, or $303 million, after a loss of €6.02 billion in the third quarter of 2015. The substantial improvement occurred in part because one-time items took a toll on the bottom line a year ago.

In its announcement on Thursday, the bank offered few signs of progress with its legal troubles in the United States. It revealed last month that the Justice Department was seeking as much as $14 billion to resolve an investigation into the lender’s underwriting of residential mortgage-backed securities.

“First and foremost, we must remove the overhang of our litigation cases and the regulatory investigations by settling those matters,” Mr. Cryan said. “This remains our — and my — top priority.”

More than a year into his tenure as chief executive of Deutsche Bank, Germany’s largest lender, Mr. Cryan faces an increasingly tough task. The bank’s stock has been under pressure over the last year after a string of poor financial results in difficult markets.

The bank has been further shaken in recent weeks by the Justice Department inquiry, which has prompted worries over the lender’s fate. On Thursday, Mr. Cryan said concerns about negotiations in the Justice Department case had overshadowed positive developments.

“This has created uncertainty,” he said during a conference call with analysts. “Uncertainty that affects the market’s view of Deutsche Bank as an investment. Uncertainty that affected some clients’ view of Deutsche Bank as a counterparty. And uncertainty that even affects our financial planning and strategy execution.”

Marcus Schenck, the chief financial officer, said that the bank could not offer an update on when it might reach a settlement with the Justice Department, but that it was committed to resolving the matter “at a reasonable amount as quickly as possible.”

The American authorities have been pushing for stiff penalties in recent years in settlements with banks as they pursue cases stemming from activities that came before the 2008 financial crisis. JPMorgan Chase paid a record $13 billion settlement over mortgage securities two years ago.

The European financial industry broadly has been under pressure, as revealed in the latest results for Barclays and Lloyds Banking Group:

■ Barclays announced on Thursday that profit had declined slightly in the third quarter as it took 920 million pounds, or about $1.1 billion, in charges related to its credit card portfolio and a contentious product known as payment protection insurance.

■ Those insurance products have weighed on the results of British banks years after they stopped selling them. A day earlier, Lloyds, one of the largest sellers of payment protection insurance, said it would bolster its provisions related to the policies by £1 billion.

■ And Lloyds is still trying to shed the legacy of the global financial crisis, when the British government injected £20.3 billion into the lender and took a 40 percent stake. Lloyds said on Thursday that the government had resumed plans to sell its remaining stake in the bank, cutting its holdings to 8.99 percent from 9.1 percent.

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27 October 2016 | 10:34 am – Source: nytimes.com

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