Even bigger loss than reported 6 weeks ago, cost cuts abandoned, bonuses quadrupled.
You just have to love Deutsche Bank. I mean, how could you not? It’s Germany’s iconic bank. It’s like Wells Fargo for Americans: It just cannot do right. It tries, but it just doesn’t work out. On Friday, when no one was supposed to pay attention, and after it already released its Q4 and annual results on February 2, it released its Annual Report.
It says that the bank had a net loss of €2.425 billion for Q4, which brought its net loss for 2017 to €735 million.
“Our results were actually better than they may seem at first glance,” the Annual Report started out hilariously, because these results were even worse than the results the company had initially reported on February 2, when it disclosed the impact of the US tax reform.
On February 2, the earnings report was titled: “Deutsche Bank reports pre-tax profit of 1.3 billion euros and net loss of 0.5 billion euros for 2017.” At the time, it reported net loss of €2.2 billion which brought the loss for fiscal 2017 to €497 million.
CEO John Cryan said at the time:
“In 2017 we recorded the first pre-tax profit in three years despite a challenging market environment, low interest rates and further investments in technology and controls. Only a charge related to US tax reform at the end of the year meant that we had to post a full-year after-tax loss. We believe we are firmly on the path to producing growth and higher returns with sustained discipline on costs and risks.”
Sure sounded good at the time. But it was contradicted today, albeit with a lot less fanfare.
Today, in its Annual Report, the bank reported a loss for Q4 and the full year that was €238 million higher than the loss reported for the same periods on February 2. An appropriate finale for the third year in a row of annual losses.
Aggrieved shareholders, whose dividends had gotten slashed back in the day, have had to watch the shares in their portfolio plunge nearly 80% over the past ten years:
In terms of its cost cutting plans, which had been hyped endlessly in 2017 and 2016 – well, they’ve now been abandoned for 2018 due to unfortunate circumstances, described in the Annual Report thusly:
In March 2017, we announced an adjusted costs target of circa €22 billion for 2018 including circa €900 million of planned cost savings through business disposals. While we made progress on planned disposals, some of them have been delayed or in some cases suspended. As a result, we currently do not expect the planned €900 million of cost savings to materialize in 2018.
Furthermore, we expect higher costs from Brexit and MiFID II implementation in 2018.
Additionally, some of the cost synergies we expected to materialize in 2018 from the merger of Postbank into our German banking entity have been delayed as we expect this merger to be completed in the second quarter of 2018. Those savings are now expected to be realized in 2019 [to be postponed indefinitely since “synergies” hardly ever materialize?].
But there’s new hope for some cost cuts elsewhere, including assumptions about “foreign currency rates,” no kidding:
Nonetheless, we have been taking additional measures to offset these impacts and also benefit from current foreign currency rates in our reported costs relative to our earlier assumptions.
Therefore, we now expect our adjusted costs in 2018 will be circa €23 billion, which reflects our original €22 billion target plus the cost impact of the delayed and suspended business disposals.
Then there’s the part in the Annual Report that Germans really love about Deutsche Bank, much like Americans love it about Wells Fargo: when it comes to bonuses, there are a few ceremonial cuts at the top, but overall it’s no holds barred.
Even while Deutsche Bank spread the good news about having incurred even bigger losses in 2017 than previously stated, and even as it warned about higher costs and failed, abandoned, or delayed cost cuts in 2018, it also reported that it had more than quadrupled the amount in bonuses it paid for 2017, to €2.3 billion.
Back in 2016, under pressure from huge losses and a blistering fine from US regulators for the behavior of its bankers leading up to the Financial Crisis, and amid revelations of other scandals and misdeeds perpetrated by its bankers since the Financial Crisis, it reduced bonuses to them to €546 million.
But this is like so forgotten. Now Cryan told his aggrieved shareholders, who’re still smarting from having their dividends slashed and having the value of their shares crushed — and who might by be dreaming of investing in gold instead — that this was needed in order to retain staff. Were these the same folks that profited from misdeeds that, when found out about, threatened to take down the bank? We don’t know. Cryan only said this:
“If we want to live up to our claim of being the leading European bank with a global network, we have to invest in our employees so that we can continue to provide the best solutions for our clients.”
Private equity firms, an integral part of Wall Street, piled into the leveraged-buyout boom before the Financial Crisis, and now these companies are collapsing into bankruptcy under their own debts, one after the other. Read… Bain Capital Wins Again: $20-Billion Leveraged-Buyout Queen Topples, Biggest in Years, Another Private Equity Casualty
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Don’t forget the ongoing Mueller investigation of the Deutsche Bank -Russian financing – Trump connection. There’s probably a few billion dollars involved there.
First paragraph typo, “leased it’s Annual Report”. ( unless it doesn’t want to own the report?)
Thanks. Seems that “re” fell through the cracks :-]
Art + Finance = Fantastic Amazing Everything
What’s their ECB and negative rate exposure? That’s the big story. Someday the Eurozone will blow like AIG, only much much bigger and without someone to bail them out, or even capable of doing so if they look sympathetic. Not for a couple of years or more, but Kablooooowie into orbit when it happens.
Today is just sniggles and heehaws.
Eight years of Obama/Holder – not one banker in jail.
Trump wins re-election in a landslide with a few banker CEO or executive perp walks.
It can be done. Bush Sr. put 1500 bankers in jail
And the person President Obama picked to replace Holder was a Wall Street insider who’d been a member of the Federal Reserve Bank of New York’s Board of Directors from 2003 to 2005.
2banana,
But Bush Sr. made sure his (fortunate) son Neil Bush wasn’t indicted. (Silverado S&L) .
“It’s Germany’s iconic bank”.
I think you meant to say: ironic
I’m still trying to wrap my head around the 500M Euro loss due to the US tax reform. Is it because with the lower US tax rates, a loss is now a less valuable write-off? Fascinating.
Maybe they follow the “stock market rules of random correlation”: They don’t know how they lost the 500 M EUR – so they just pinned it on the tax reform :).
So bonuses are needed to retain management in the corporate
world but wage raises are verboten?
They get bonuses when they make money, bonuses when they lose money, and I’m certain they will get bonuses when they are being bailed out by German taxpayers too.
Re the huge bonuses: Smart rats leaving a sinking ship get aboard flotsam with enough kitchen slop on it to feed them the rest of their lives.
What a twisted world ! Bonuses for failure !!!
Deutsche is Doomed
I know the article just contained snippets from the annual report, but the writing was atrocious. Maybe childish is a better word.
But then, what the hell, their stock has gone monotonically down 80% over 10 years. They can’t manage or write.
This management gang just sounds totally out of gas; they no longer have the will (let alone skill) to manage.
For once, I think it’s hard to blame the management team. I am not even sure what Cryan was thinking when he took this job. The two bozos before him had basically decimated DB.
Maybe he’s thinking of a future where he specializes as a turnaround specialist?
Seriously if he has actually managed to turn around DB, he should be hired to turn around the many retailers who are going bankrupt the next few months.
Having done a couple turnarounds (financial, not ethical), I consider it everything but impossible to achieve it with the legacy (ie: pre-existng) management team in place.
Doing a culture change, you simply cannot have a legacy Deutsche manager reporting to a legacy Deutsche manager.
I know we’re talking a couple thousands Deutesche managers (not all of whom are incompetent), but a minimum of 30-50% of them need to be let go.
Ah but if they are let go, the whole thing might collapse. “Gardening leave” kinda works when one or two people are taking vacation, but if 30 to 50% of the people are literally fired, it might be game over.
Turn arounds are like mergers i.e. it’s better you don’t do it in the first place.
Deutsche doesn’t mean “Titanic” but one would think so…
Did you know one of the reasons the Titanic sank was because it was burning for several days before it even set sail for the first time? That weakened the ship so much it no wonder it sank.
This is more or less the same.
Hi raxadian, that’s a really good example. For me looking at the accounts the turnover has dropped from 30 billion to 26 billion, well over 10% year on year, that’s Italian bank proportion. The balance sheet at 1.4 trillion euros is scary considering the bank is losing money. Add in the 8 billion in goodwill on the balance sheet.
Not too long ago US banks took some of DBs derivative book, at the behest of then head Yellen. Afterwards they failed their stress tests, but one imagines that the process of “registering” a derivative acquired in a secondary transaction is like fencing hot property. Of course with blockchain technology the serial numbers can’t be erased. I have seen stolen cars returned to their owners fifty years later, but never does anyone go to jail.
Germany , America and Europe need a 21 st century Glass Steagall act .
Does this tell us Germany has every intention of remaining in the EU, else their flagship might roll over dead otherwise?
And why should Brexit cost DB one way or the other, were they betting on one side of the Brexit vote?
I sold that stock sometime ago, circa $34 so as to allow someone else enjoy the opportunity costs.