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Deutsche Bank has ditched plans for more share buybacks this year after taking a more than €1bn litigation charge tied to its botched acquisition of German retail lender Postbank.
Shares in Germany’s largest lender fell as much as 8 per cent on Wednesday after chief financial officer James von Moltke said that the bank would focus on “building excess capital” over the rest of the year.
Deutsche Bank disclosed €1.55bn of litigation costs in the second quarter, €1.3bn of which stemmed from a lawsuit the bank faces over its purchase of Postbank. The charges pushed the bank to a net loss of €143mn in the three months to the end of June, its first quarterly loss in almost four years.
Despite halting buybacks for the remainder of the year, chief executive Christian Sewing sought to reassure shareholders that it would stick to its promise of paying out a total of €8bn through a mix in dividends and buybacks between 2021 and 2025.
Alongside disclosing the litigation costs, Deutsche Bank also raised its provision for credit losses this year, saying it had been too optimistic about how quickly the commercial property market would recover.
For the second quarter, its provision for credit losses rose by almost a fifth to €476mn, bigger than even the gloomiest forecast. Von Moltke said that this total could still reach €525mn.
While this may be “a little bit worse than we anticipated”, the total level of provisions was still not “dramatic”, he insisted.
The decision to halt buybacks this year also overshadowed signs that the bank’s ambition to ride the global rebound in dealmaking is paying off.
Revenues from advising companies on deals, as well as on raising new debt and equity, climbed to €585mn in the second quarter from €291mn a year earlier, Deutsche Bank said on Wednesday.
The increase vindicates the bank’s attempt over the past 18 months to reboot its corporate finance advisory business and reduce its reliance on bond trading.
Pre-tax profits at the investment bank rose by a quarter to €746mn, short of analysts’ expectations. The bank’s trading revenues fell 3 per cent in the quarter from a year earlier.
Analysts and investors were expecting a better performance from the investment bank after Wall Street rivals had reported their best quarter in more than two years.
The bank’s common equity tier one ratio — a key measure of its balance sheet strength — stood at 13.5 per cent of risk-weighted assets, up 10 basis points compared with the first quarter of the year.
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