Deutsche Bank’s record loss revives capital increase fears

Deutsche Bank’s record net loss of €6.7 billion which it expects to report for 2015, due to writedowns, litigation charges and restructuring costs, have renewed concerns that it will now need to raise new capital to strengthen its finances.

After surprising markets in October with a record €6.2 billion third-quarter loss, Deutsche Bank said late on Wednesday it expects its fourth-quarter loss to be about €2.1 billion.

Germany’s biggest bank booked in litigation charges of €1.2 billion in the quarter, alongside costs for restructuring and severance packages of €0.8 billion, mainly related to its retail bank.

New chief executive John Cryan, who took the helm in July, is aiming for a fresh start but the bank remains heavily dependent on volatile trading income. That business was hit hard by challenging market conditions that undercut revenue in the fourth quarter.

“We see further downside risk on litigation - we model another €3.6 billion in 2016 - which is likely to necessitate a capital raise,” analysts for Citi said, rating the stock “neutral/high risk” and cutting their price target to €20 from €27.

Analysts at Goldman Sachs, which has a “neutral” stance on Deutsche Bank’s stock, said they expected litigation issues to persist for a “multi-year period”. But even without such charges, the underlying trends looked weak, they added.

Shares in Deutsche Bank, which have lost a third of their value over the past three months, were down 1.1 per cent in pre-market trade at brokerage Lang & Schwarz.

Mr Cryan is under pressure to overhaul Deutsche, which is struggling to end costly litigation from past scandals and adapt to tighter banking rules.

In an attempt to reduce the size of the bank and make it more profitable, Cryan has announced 15,000 job cuts and plans to shed businesses employing a further 20,000 people.

In October he also warned that the bank faces two tough years of dividend cuts, pay restraint and harsh restructuring measures, admitting to grave problems in implementing strategic and cultural change.

However, UBS analyst Daniele Brupbacher said that although a true fresh start would mean lower net profits for a while he believed that the bank aimed to manage its turnaround without raising fresh capital.

Deutsche Bank, which is set to report full results for 2015 on January 28th, also said late on Wednesday that it expected to report a common equity capital adequacy ratio of about 11 per cent of risk adjusted assets as of the end of the year.

Reuters