The Strategist

Deutsche Bank To Lose € 6 Billion Within Three Months

10/08/2015 - 15:44

The European largest investment bank Deutsche Bank yesterday warned loss of € 6,2 bln. in its third quarter. Such record losses have been caused by the write-off of assets and increased costs for litigation.

Elliott Brown via flickr
Elliott Brown via flickr
The statement by Deutsche Bank came out late last night, after the close of trading on the stock exchange. There, the bank warned about the costs and write-offs that has "significantly" affected the results of the third quarter. In particular, it is reported that due to the tightening of regulatory requirements on incorporate the quality of assets, the bank will be forced to write down the value of certain assets totaling € 5,8 billion. The bank warned that the write-off would not have a significant impact on the rate of its Tier I capital, which now stands at 11%, what falls within the requirements of the European and global regulators.

In addition, Deutsche Bank announced the allocation of € 1,2 billion for legal costs. As we know, last year the German bank found itself at the center of several major scandals. In April, the US Justice Department and the British Department for Supervision of Financial Markets reported that Deutsche Bank must pay to US and British regulators fines and compensation for a total of $ 2.5 billion. The penalty was assigned for the manipulation of LIBOR interbank lending rate. In late May, it became known that Deutsche Bank is checking its Russian division on suspicion of involvement in money laundering. Last week, new details has emerged: it became known that we are talking about money in amount of $ 6 billion. This has led to the fact that in June the bank's management, represented by general directors Juergen Fitschen and Anshu Jain, resigned. The new CEO, John Cyran said he intends to decisively deal with all the shortcomings, for what he may have to make a number of difficult steps.

Experts believe that the large write-offs and the allocation of funds for legal costs are part of the anti-crisis plan of the new leadership of Deutsche Bank. "First, there is always a bitter pill - Bloomberg quotes Sebastien Pigeon, an analyst at Morningstar research firm. – The bank must first swallow bad news, for make it possible to work out future strategy at the shareholders' meeting." The market response to these reports has been as controversial today: in the first minutes of trading in Frankfurt, Deutsche Bank shares fell by 1%, then quickly won back the fall and then went up by 1% compared to yesterday's closing price.  


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