A Look at Deutsche Bank’s 4Q15 Performance
Will Deutsche Bank's 1Q16 Earnings Push the Stock Even Lower?
Deutsche Bank’s 4Q15 earnings
Deutsche Bank (DB) reported losses of 2.1 billion euros in 4Q15. That’s in line with a warning issued earlier. For 2015, Deutsche Bank’s losses were 6.8 billion euros, its first loss since the financial crisis of 2009. Fourth-quarter expenses spiked as the bank reported higher restructuring and severance charges as well as litigation charges of 2.1 billion euros. That amount was primarily related to an anticipated settlement tied to mortgage-backed securities.
The investment banking division suffered from a “challenging trading environment” that hampered client activity. In comparison, rivals Barclays (BCS) and UBS both reported profits for the quarter. European banks (EUFN) have been lagging behind their US counterparts (XLF) when it comes to recovering from a crisis.
Revenues and income
Fourth-quarter revenues were 6.6 billion euros, a decline of 15% year-over-year. For 2015, revenues were 33.5 billion euros, slightly higher year-over-year if measured on a constant exchange rate basis. The decline in revenues was primarily due to a decline in revenues in Corporate Banking & Securities and mark-to-market losses in the Non-Core Operating Unit.
Non-interest expenses, however, rose 24% to 9 billion euros due to high litigation charges and expenses related to restructuring and severance. In 4Q15, the bank reported litigation charges of 1.2 billion euros and restructuring and severance expenses of 0.8 billion euros.
The bank’s cost-to-income ratio has soared to 135%. This is partly due to the exceptional loss, but costs are generally high compared to competitors, even in divisions not affected by the loss.
Capital and leverage
Deutsche Bank’s capital ratios were unaffected by impairment of goodwill and other intangible assets charged during the quarter. The common equity Tier 1 ratio was 11.1%, which is 4 basis points higher than 3Q15. The decline was primarily attributable to losses incurred during the quarter.
However, the sale of a 19.9% stake in Hua Xia Bank improved this ratio by 50–60 basis points on a pro forma basis. During the quarter, the bank’s leverage ratio declined to 3.5%, reflecting the quarterly loss. Risk-weighted assets declined by 11 billion euros to 397 billion euros in 4Q15.
In the final part of our series, we’ll see why analysts are bearish on Deutsche Bank in spite of its cheap valuations.
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