Deutsche Bank Sees Annual Loss Amidst US Tax Reform, Market Challenges

US tax reform caused a massive non-cash tax charge of €1.4 billion that sunk the group's yearly profits.

Deutsche Bank has reported its latest Q4 financials, which saw the bank incur its third consecutive loss in 2017. The results have ramped up the pressure on the bank’s CEO John Cryan, whose cost-cutting initiative and restructuring has not panned out as investors would have liked.

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For the past few years, Cryan has been the architect of one of the largest endeavors in the industry, looking to rekindle profits at Deutsche Bank. This has seen massive personnel changes, wide restructuring moves, and the consolidation of key divisions and units. Unfortunately, after a promising start in 2017, Deutsche Bank’s financials failed to result in a yearly profit, with Q4’s figures representing a difficult quarter.

In particular, markets were of little help to Deutsche Bank, which saw a drop in revenue in Q4. Moreover, US tax reform also presented a challenging backdrop for the bank as it struggled to hit key revenue and profit targets. Investors’ patience had already been wearing this, which will likely once again lead to pressure on Cryan and his agenda.

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For his part, Mr. Cryan sought to dispel any notions of panic: “We believe we are firmly on the path to producing growth and higher returns with sustained discipline on costs and risks. We have made progress, but we are not yet satisfied with our results,” he noted in a statement on the results.

Profit loss

Deutsche Bank’s estimates proved to be overly optimistic in 2017 with its eventual loss of €497.0 million far surpassing a street consensus. According to a Reuters report, a group of nine banks and brokerages had estimated a loss of just €290.0 million. Compounding this factor was the passage of US tax reform, which resulted in a non-cash tax charge of €1.4 billion.

In particular, Q4 at Deutsche Bank saw a net loss of €2.19 billion euros, down from €1.89 billion in 2016, while revenue slumped 19.0 percent to €5.7 billion. Moreover, Deutsche Bank’s bond-trading division also saw revenues decline to the figure of 29.0 percent given lower client activity in less volatile markets.

Of note, Q4 had been a difficult quarter as market volatility was amongst the lowest of the year. This had an aggregated effect on Deutsche Bank’s trading, though it is noteworthy that other banks experienced this same phenomenon. On the whole, the banking sector by and large had a 2017 to forget.

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