Deutsche Bank warns of EUR6.2bn loss on impairments, writedowns

Deutsche Bank said late on Wednesday that it expects to book an impairment of around €5.8bn in the third quarter for a writedown related to its corporate banking unit.

The bank also said it will book an impairment of €600m on its 20% stake in China’s Hua Xia Bank and will set aside around €1.2bn for litigation.

Based on these charges, Deutsche now expects to report a third-quarter loss before taxes of approximately €6bn and a net loss of €6.2bn. The bank said that excluding the impact of the impairment of goodwill and intangibles, the net loss for the third quarter would have been €400m.

As a result, the company said it will either reduce or suspend the dividend for 2015.

Goldman Sachs said: “Overall, this development confirms our view that the task facing new management is very demanding. Litigation issues do not end with this mark-down – we expect them to persist for a multi-year period. We do not see this as a ‘clean up’ but rather an indication of what the ‘fixing’ of Deutsche Bank will entail over the 2015-18 period.”

Shares opened in the red but managed to reverse losses and by 1130 BST, were trading up 0.7% at €25.68.

Nomura, which kept its rating on the stock at ‘buy’, said the shares were already pricing in a significant dilution.

“If CEO John Cryan can convince investors that underlying earnings power and deleveraging can offset litigation and risk-weighted assets headwinds and a capital increase can be avoided, we would expect the shares to recover to 0.8x tangible book value even without successful cost reduction.”

Meanwhile, Kepler Cheuvreux pointed out that the scrapping of the dividend would enable DB to avoid a capital increase. It said the warning looks like “a kitchen sinking” by management and should be taken as a net positive.