Deutsche Bank’s profits wiped out by legal costs

 
Tim Wallace
Follow Tim
SOARING legal expenses and plunging trading revenues devastated Deutsche Bank’s third quarter earnings, the bank revealed yesterday, with profits down 98 per cent on the year to just €18m (£15.4m).

The bank put another €1.2bn aside to cover litigation, double the level expected by analysts and bringing its total expected legal costs to €4.1bn.

It is setting the money aside to cover the bill from cases including Libor and other interest rate benchmark investigations; the European Commission’s claims the bank was involved in anti-competitive conduct regarding credit default swaps; foreign exchange trading investigations; and asset-backed securities probes, among others.

Meanwhile trading revenues dropped sharply, bringing down revenues in the corporate banking and securities arm by 26 per cent year-on-year to €2.9bn.

Global transaction banking revenues slid two per cent to €1bn. And private business and client revenues dropped five per cent to €2.3bn.

Pre-tax return on average active equity fell to zero in the third quarter, from eight per cent in the same period of 2012.

And Deutsche Bank’s common equity tier one capital ratio came in at 9.7 per cent, up on the 7.8 per cent at the start of the year but a touch down on the 10 per cent recorded at the end of the second quarter.

The bank’s cost cutting plans are running ahead of target, with €1.5bn of its year-end €1.6bn target already achieved with one quarter to go.

That puts it firmly on track to achieve its overall target of cutting €4.5bn off annual costs by 2015.

Part of the fall in costs came in compensation, with pay being restrained and bonuses slashed on the poor performance.

Despite headcount rising by 0.5 per cent to 98.662, compensation and benefits paid out plunged 12 per cent to €2.9bn.

That brings the compensation ratio down from 39.9 per cent to 38.1 per cent.

Much of that fall in pay came in the corporate banking and securities arm which performed poorly in the quarter.

The bank’s shares ended the day up 0.86 per cent.