Deutsche Bank’s shock announcement that it forecasts a loss of €6.2 billion has sent shivers in the financial world, no less among shareholders who might not receive a dividend this year.
The bank warned of the net loss, saying it would record a charge of €5.8bn in impairments, "largely driven by the impact of expected highly regulatory capital requirements... as well as current expectations regarding the disposal of Postbank".
It also set aside €1.2 billion to meet the cost of litigation.
The bank is tangled up in the Libor-rigging scandal. At the same time, Swiss authorities are investigating it on suspicion of price fixing in the precious metals market.
Additionally, it lost €600 million in the value of its shares in China’s Hua Xia Bank where its stake was nearly 20%.
An official at the bank implied that it might dispose of its shares in Hua Xia, saying there has been a "change of the intent of the holding" and that it "no longer considers this stake to be strategic".
As a result, the group said it will have to cut or even drop dividend payments for the year.
Deutsche’s new leader, John Cryan, hinted at cuts to bankers’ bonuses. In a memo, he told staff: “While compensation considerations are not based on this year’s financial results alone, our shareholders will rightly expect employees to share something of the burden.”
Cryan took up the post in July of this year and embarked on a clean-up operation. Details of his strategic review will be published at the end of October.
Comments
If a well resourced bank like Deutsche has these problems meeting regulatory requirements what of the hopelessly weak Portuguese banks?
Deutsche in Portugal is now beefed up with some of the star managers from Barclays Portugal jumping ship before it becomes Spanish ... and no doubt many Barclays Portugal clients are busy, like us, following them over.
Intentionally not discussed in Portugal but all the rage in Greece are the new bail in regulations for failing banks. Beginning January 2016. Meaning that governments cannot prop up their sick banks any and so depositors will get haircutted. As happened in Cyprus.
And remember that the first 100,000 euros is safe in your bank account assumption is only relevant if the state - as the lender of last resort - is itself strong enough to make up any shortfall in its banking sector.
Exactly why the Portuguese Government owned Caixa Geral de Depositos S.A was downgraded by Fitch last May and Moody's in June. (But shhhhh ... is the word. Don't want anyone to panic. Bank runs and all that)