UK Edition
Deutsche Bank turns surprise profit but Cryan warns of 'tough' times ahead
The boss of Deutsche Bank has told staff to brace for a difficult period ahead even though the struggling lender surprised investors by swinging to an unexpected quarterly profit.
The German bank, which is Europe’s biggest, was plunged into turmoil last month after the US Department of Justice (DoJ) demanded $14bn to settle allegations the lender sold toxic mortgage-backed securities before the financial crisis.
The fine sparked fears customers would abandon Deutsche and the lender might collapse. Despite the crisis, the firm, which is in talks to negotiate down the penalty, reported a €278m net profit for the third quarter, against a €6bn loss a year earlier.
The news helped the bank's shares to rise 0.6pc in afternoon trade.
Even so, the Deutsche’s British boss John Cryan warned in a memo to employees today that “we must anticipate the situation will remain tough for some time to come”.
He said: “Discussions with the Department of Justice are moving forward and we are working hard on achieving a resolution of this matter as soon as possible. Simultaneously, our environment has worsened further in some important areas.
“As we indicated at the time of our half-year results, we will have to accelerate and intensify our restructuring.”
Like Barclays today and some of the major US banks, Deutsche was helped during the third quarter by a recovery in bond trading. The fixed income revival lifted net revenues at its global markets division by 10pc to €2.6bn, helping overall revenues increase by 2pc to €7.5bn.
The bank’s common equity tier-one capital ratio, a gauge of the size of its cushion against losses, rose to 11.1pc from 10.8pc at the end of June. However, its liquidity reserves fell to €200bn, down from the €215bn Mr Cryan had disclosed at the end of September in another letter he sent to staff to reassure them of the bank’s viability.
The fallout from the DoJ had “overshadowed” the quarter, Deutsche’s boss conceded. There will be more pain to come with the bank now focused on cutting jobs and branches in an attempt to bolster its finances.
He told employees: “We aim to be more ambitious in headcount reduction, as you can see from the decision to introduce extensive hiring restrictions. If and where it is absolutely necessary to fill positions, we will give preference to internal candidates.”
The Deutsche crisis has shaken the entire banking system. The lender is considered systemically important because it acts as a counterparty to banks and other firms around the world.
Worries it could fail have sent shockwaves rippling through the City, Wall Street and beyond.
Its progress with the DoJ is particularly important to Royal Bank of Scotland, because the British lender is also expected to be hit with a hefty US settlement. RBS posts third-quarter results tomorrow but is not expected to give a substantial update on its DoJ talks because they are not thought to be at an advanced stage.