Deutsche Bank Reports Weaker-Than-Expected Profit, Shares Fall 5%

Deutsche Bank, Germany’s largest lender, faced a significant drop in its quarterly profit, leading to a 5% decline in its share price.

The bank’s net profit for the fourth quarter of 2024 came in at 106 million euros ($110.4 million), sharply below analysts’ expectations of 282 million euros. This marks a notable decline from the 1.461 billion euros posted in the third quarter. The downturn was primarily attributed to high litigation costs, which amounted to 594 million euros.

The legal provisions, including expenses related to a long-running mis-selling scandal and PostBank litigation, heavily impacted the bank’s bottom line. These costs are linked to the settlement of older legal matters, such as a provision of 1.3 billion euros for the PostBank minority shareholder lawsuit, marking a significant drain on profits.

In response to the financial pressures, Deutsche Bank adjusted its cost-income ratio target for 2025, setting it at below 65%, up from the previous goal of below 62.5%. The bank also launched a 750 million-euro share buyback program, signaling its intention to return value to shareholders despite the challenging financial results.

For the full year, Deutsche Bank’s net profit dropped 36% to 2.7 billion euros, and its return on tangible equity (ROTE) fell to 4.7% from 7.4% in 2023, well below the bank’s target of over 10%. The bank’s fourth-quarter revenue of 7.224 billion euros exceeded analysts’ expectations, but it was still overshadowed by the litigation expenses.

The bank’s investment banking division showed resilience, with a 30% year-on-year revenue increase in the fourth quarter, driven by strong demand in fixed income and currency trading. However, the corporate and retail banking units experienced slight declines in revenue.

Looking ahead, Deutsche Bank’s CEO, Christian Sewing, acknowledged the challenges posed by legal costs and other non-operating expenses in 2024. He expressed confidence that these legacy issues were now behind the bank, which should reduce future risks. Sewing also signaled a strategic review, considering potential adjustments in the bank’s capital allocation and business activities.

The bank remains focused on its goal of achieving stronger returns in 2025, with plans to lift ROTE to over 10%, although analysts have raised doubts about this target’s attainability. Despite the setbacks, Deutsche Bank maintains that it has laid the groundwork for future growth, with a stronger performance expected in its trading division continuing into 2025.

With input from CNBC, the Financial Times, and Bloomberg.