Deutsche Bank in headlines after share, profit plunges

ANKARA

Germany’s Deutsche Bank made headlines Wednesday after it announced its profits had plunged in the second quarter of the year following a record loss last year.

The bank has a huge commercial business, a large number of clients and large derivatives (€42 trillion, compared to Germany's total GDP €3 trillion in 2015), and while it has no connection to real trade worldwide, it has very tight capital, according to analysts.

The German lender’s shares fell 3.5 percent Wednesday and were falling 3.66 percent Thursday after it said net income in the second quarter was a mere €20 million ($22 million), down 98 percent from a year earlier following a €6.8 billion loss last year.

Its shares have lost 60 percent over the past 12 months while European banks lost 39 percent in that time, and has a stock market value of only €17 billion euros, down from over €30 billion a year earlier.

The bank's earnings also have been undermined by 12.6 billion euros ($14 billion) in fines linked to past misconduct.

The bank is in the midst of a major restructuring effort. Last October, the bank said that it would cut more than 30,000 jobs over the next two years in order to save about €3.8 billion.

"If the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring," Deutsche Bank CEO John Cryan said Wednesday after it announced financial results for the second quarter.

According to the International Monetary Fund on June 30, all the systemic risk the bank brought to the international banking system makes Deutsche Bank more dangerous than any other bank in the world.

"The bank revenues were hit by a weaker trading environment, the impact of the Brexit vote, and the turmoil at the bank as it restructures," Christopher Wheeler, an analyst at Atlantic Equities, told Anadolu Agency on Wednesday in an email interview.

However, Wheeler said that the bank is losing market share. "In Q2 FICC [Fixed Income, Currencies, and Commodities] trading, revenues fell 19 percent year-a-year. During the same period, the five big U.S. banks increased 21 percent while equity trading fell 31 year-on-year and the U.S. banks had an aggregate 4 percent fall."

Wheeler said that global markets are a very important part of Deutsche Bank. "And the CEO needs to try and maintain its strong position (number four globally in debt (FICC) trading) while the bank restructures."

According to Wheeler, the German bank has plenty of problems to deal with.

"The CEO is accelerating change to address weaker markets. However, it has strong liquidity and the full support of the German government. It cannot be compared to Lehman Brothers.”

When asked if the bank would fail, and how it would affect economies on the continent, Wheeler said it would not.

"If it did the consequences would be awful ... but it will not happen for many reasons," he said.

- Negative interest rates hit the bank

“It is not surprising to see a decrease in its profit while even an announcement of loss is expected," said Sant Manukyan, head of Investment International Markets Department with Turkish lender Is Bank.

"The bank has already been in a restructuring process for a while. Outmoded banking models and negative interest rates as global interest rates remain at very low levels and in some markets are currently negative, have hit the banking profits," Manukyan said.

Manukyan stated that the bank has been trying to diversify its services and earn revenues through commission fees based on these services instead of interest margins, and “reduce risky assets to strengthen its capital structure as well."