Deutsche Bank warns of difficult year ahead

Deutsche Bank, Germany's biggest lender, on Thursday warned that 2016 would be a difficult year, even if it performed better than expected in the first three months.

The first quarter "was one of the most difficult" for the bank, chief financial officer Marcus Schenck told a telephone conference with analysts.

And in the current context of global economic uncertainty, Deutsche Bank's revenue situation "will remain difficult for the whole of 2016," he said.

Nonetheless, the group's first-quarter performance still largely beat analysts' expectations.

Deutsche Bank said its net profit fell to 214 million euros ($243 million) in the period from January to March, down from 544 million euros a year earlier.

That represented a drop of 58 percent, but analysts had been pencilling in a bottom-line loss for the bank in the three-month period.

Underlying or operating profit plunged by 60 percent to 579 million euros on a 22-percent drop in revenues to 8.1 billion euros.

"Financial markets were challenging during the first quarter, largely reflecting concerns about the outlook for the global economy," said chief executive John Cryan.

"This uncertainty led to a decline in client activity in the capital markets, and our revenues fell from the prior year, most notably in our trading and corporate finance businesses," he said.

"Our results reflect these challenging conditions as well as the impact of our strategic decisions to exit or reduce significantly selected businesses," Cryan added.

- Major restructuring -

As part of wide-ranging restructuring plan, Deutsche Bank is shutting down 200 high-street branches in Germany, selling off its Postbank subsidiary and pulling out of a number of countries.

The CEO nevertheless insisted that the bank had made progress on a number of fronts including the modernisation of its IT platforms.

The operational separation of Deutsche Postbank was "almost complete," he said.

Deutsche Bank was pressing ahead with the disposal of non-core assets "and the ongoing closure or downsizing of our operations in selected countries."

Cryan said that 2016 would mark "the peak year for our restructuring efforts."

The stake in China's Hua Xia Bank would be completed in the second quarter, helping to strengthen the bank's core capital ratio.

"For too long, a critical and necessary restructuring was postponed and we don't want to repeat that," said CFO Schenck.

"We continue to upgrade our technology, strengthen our control environment, and work towards resolving outstanding litigation matters," the CEO added.

Deutsche Bank is currently entangled in a web of legal woes, facing as many as 6,000 different litigation cases, the provisions for which helped push it to a record loss of 6.8 billion euros last year.

In a newspaper interview the day before, co-CEO Juergen Fitschen had said that the bank was hoping to settle some of the major lawsuits by the end of this year.

- Cleaning up its act -

The bank's provisions for litigation in the first three months amounted to just 187 million euros compared with around one billion euros for each quarter in 2015.

Investors were clearly pleased by the fact that Deutsche Bank had turned in a profit in the first quarter and not a loss as anticipated.

The group's were one of the only three gainers in a generally weaker market on the Frankfurt stock exchange, adding just over three percent while the overall DAX 30 index was down by more than one percent.

Expectations for the first quarter had been "very low," said Equinet analyst Philipp Haessler, who insisted that Deutsche Bank was "pursuing the right strategy."

LBBW analyst Ingo Frommen agreed that the first-quarter figures wree "sobering. The start to the year confirms the management's view that 2016 will be a very challenging year."

Deutsche Bank's efforts to clean up its reputation and engender a different corporate culture nevertheless appears to be the source of some tension on its supervisory board.

According to newspaper reports, some members feel that the group's legal counsel, Georg Thoma, is being over-zealous in his response to the scandals.