Germany's flagship lender Deutsche Bank made a profit in 2018 after three years of losses as it hit targets for cutting costs — but lost money in the last months of the year and faces a raft of issues including a steeply lower share price and continuing legal troubles.
The bank said Friday it made net profit of 341 million euros ($390 million), up from a loss of 735 million euros in 2017. It met a key goal of less than 23 billion euros in costs, coming in at 22.8 billion, with almost 6,000 departures in 2018 brought the payroll down to 91,700.
The result was short of expectations of 505 million euros from analysts surveyed by Factset. Deutsche also lost 409 million euros in the fourth quarter, which was greater than the 268 million euros expected on average by analysts according to a consensus report on the bank's website, as revenue slumped from trading bonds and currencies.
Pre-tax profits at the financial firm were up eight percent year-on-year, at 1.3 billion euros.
But revenues fell four percent, to 25.3 billion euros, with Deutsche blaming a fourth quarter marked by "challenging financial markets" and "negative" headlines, including a November raid by prosecutors on the bank's Frankfurt headquarters.
CEO Christian Sewing said that "our return to profitability shows that Deutsche Bank is on the right track." He said the bank's next goals were to continue cutting costs and to grow profitability "substantially" this year and beyond.
Sewing took over in April from John Cryan, who left amid dissatisfaction with the slow pace of restructuring. The bank has shed employees, dumped risky assets and refocused on Europe and Germany rather than trying to compete with Wall Street investment banks. So far, investors are not convinced. The bank's shares have fallen 45 percent over the past 12 months. Shares fell 4.4 percent Thursday on speculation that Deutsche Bank might merge with smaller German rival Commerzbank.
Sewing, asked about a potential merger, said last week that his first goal was restoring profitability and that a merger was "beyond what I'm currently thinking of."
However, time is running out for Deutsche Bank to turn around on its own, making a merger with rival Commerzbank more likely, two people with knowledge of the matter told Reuters on Thursday.
A major investor is awaiting market reaction to both banks' earnings over the next couple of weeks before deciding on the need for a merger, said a person close to the investor.
Speculation of a merger between the two has heightened under the tenure of Finance Minister Olaf Scholz, who has spoken in favor of strong banks. His team has met frequently with executives of Deutsche, Commerzbank and major shareholders.
In the bank's different divisions, operating profit at the retail and commercial banking unit was roughly flat, while the flagship corporate and investment bank unit tumbled eight percent.
There was a steeper fall for the smaller asset management arm, whose profits shed 14 percent.
The quarter was marked by continued weakness in its key trading business. Revenue at its cash-cow bond-trading division plunged 23 percent.
Deutsche Bank's legal troubles include inquiries from regulators about transactions related to Danske Bank, whose Estonian branch is suspected of laundering money from the former Soviet Union. The bank says there are "no probes" involving it but that it has received several request for information from regulators and law enforcement agencies around the world and is cooperating with them. It says it processed payments for Danske bank but terminated the relationship in 2015 after identifying suspicious activity by its clients.
Authorities searched bank headquarters in November as part of an investigation into suspicions bank employees helped set up offshore accounts use to launder money. Prosecutors said the probe emerged from documents leaked from tax havens including the 2016 "Panama Papers."
Deutsche Bank said it believed it had already given the authorities all relevant information related to the Panama Papers and that it is cooperating fully.
The bank was also fined more than $600 million by U.S. and U.K. authorities in January 2017 for allowing customers to transfer $10 billion out of Russia in what regulators said was "highly suggestive of financial crime."
It has also received an inquiry from the financial services and intelligence committees of the U.S. House of Representatives. Rep. Maxine Waters, a Democrat who took over the finance committee chair after Democrats won the House in November's election, said in November she wanted to ask Deutsche Bank about its loans to the business ventures of President Donald Trump and seek more information about the Russian money laundering case.
The bank says that it is "engaged in a productive dialogue with those committees" and that it is "committed to providing appropriate information to all authorized investigations."
Deutsche added that by the end of the year, it had "wholly or partially resolved 19 of the 20 most significant" looming legal risks identified in 2016, with 1.2 billion euros of provisions set aside for litigation costs.
Looking ahead to 2019, the group aims to cut costs to 21.8 billion euros, compared with a previous target of 22 billion, while shrinking its workforce to "well below" 90,000.
In financial terms, Deutsche will target a return on tangible equity of four percent, compared with 0.5 percent in 2018.
Deutsche is considered one of the most important banks for the global financial system, along with JPMorgan Chase, Bank of America and Citigroup.
But the German lender has been plagued by losses and a scandal. A $7.2 billion U.S. fine in 2017 for its role in the mortgage market crisis was a major blow that spooked clients.