Profit falls and cost target scrapped

Germany’s largest lender Deutsche Bank on Thursday reported weaker-than-expected profit that fell sharply in the last three months of 2024, as legal provisions weighed on the bottom line.

Frankfurt-listed shares of the bank pared back some of the losses from earlier in the day to close down 1.9%.

Net profit attributable to shareholders hit 106 million euros ($110.4 million) in the fourth quarter, compared with the 282.39 million euros forecast in an LSEG poll of analysts. The result marked a significant fall from the 1.461 billion euros achieved in the third quarter.

Full-year net profit attributable to shareholders came in at 2.698 billion euros, down 36% from 2023.

Revenue reached 7.224 million euros in the fourth quarter, versus an LSEG analyst poll of 7.125 billion euros — but was eroded by litigation costs over the period to the tune of 594 million euros. Full-year 2024 revenue grew 4% year-on-year to 30.1 billion euros.

Deutsche Bank CFO James von Moltke admitted that the bank saw “a very high level of non-operating costs in 2024.”

“We are not happy with one-off expenses or surprises and most of these things have really been … issues arising from the past, sometimes the distant past, the PostBank takeover litigation matter in 2024 is a good example. Which, on a net basis, represents about 900 million of costs in ’24,” von Moltke told CNBC’s Annette Weisbach in a Thursday interview.

“So in a sense, the only good news thing you can say about it: it’s behind us. And importantly, therefore, the risk profile of the company is dramatically changed,” he added

The bank said it now targets a cost-income ratio of below 65% this year, compared with an initial goal of below 62.5%. Despite the drop in quarterly profit, Deutsche Bank also launched a 750 million-euro share buyback.

Other fourth-quarter highlights included:

• Profit before tax of 583 million euros, down 17% year-on-year;
• Provision for credit losses of 420 million euros, down 14% year-on-year;
• CET 1 capital ratio, a measure of bank solvency, was 13.8%, unchanged from the third quarter.

Deutsche Bank declared a post-tax return on tangible equity (ROTE) rate of 4.7% across full-year 2024, down from 7.4% in the previous year — and well below the lender’s target of above 10% ROTE this year.

The fourth-quarter profit drop marks a setback for the lender, which had returned to black in the third quarter, after breaking its profit streak with a 143-million-euro loss in the three months to the end of June, as it made a provision for litigation over its Postbank division. Deutsche Bank previously embarked on a 2.5-billion-euro cost-saving drive after hitting a post-financial crisis low in 2019 that crowned a decade of weak earnings, with shares progressively gaining ground to add more than 30% last year.

Previously buoyed by buybacks and a high interest rate environment, European banks must now contend with the partial loss of that support as the European Central Bank continues last year’s cycle of loosening monetary policy. The ECB is widely expected to trim rates once more at its meeting later in the Thursday session.

“The strong tailwind from higher interest rates has come to an end. We believe that banks focusing more on fee-based income rather than solely on net interest income, and those with potential for mergers and acquisitions, are better positioned for 2025. This includes banks in Germany, Italy, Spain, and France,” ING analysts noted in their Bank Outlook 2025 report released in November.

Deutsche Bank, for its part, has recently seen robust performance from its investment banking operations — a main driver of its third-quarter revenues and a core growth pillar over the period. The investment banking unit’s revenues picked up by 30% year-on-year to 2.4 billion euros in the fourth quarter, also rising 15% year-on-year to 10.6 billion euros in 2024.

German banks have also been weathering the storm of a dimmed outlook for Europe’s largest economy this year, along with political volatility ahead of upcoming general elections in February.

“We also share the frustration that I think is pretty pervasive in Europe, that growth has been relatively stagnant over the last couple of years as Europe has worked through a transition on a number of items, energy costs, inflation, interest rate cycle and what have you,” von Moltke told CNBC on Thursday. “We’d like to see a policy mix that focuses on growth and competitiveness in Europe.”

Domestically, Deutsche Bank could stand to benefit from uncertainty surrounding the fate of Germany’s second-largest lender Commerzbank, in which Italy’s UniCredit has been building a stake since September, stoking speculation of a potential takeover.

Speaking to CNBC on Thursday, von Moltke said Deutsche Bank is looking at how to compete or benefit, as well as assessing strategic ramifications from any “change in our landscape” that would be triggered by a successful UniCredit takeover.

European banks have come under pressure to compete with the scale, growth and profitability of peers in the U.S., where Deutsche Bank has been steadily investing to strengthen its foothold. Deutsche’s operations in the country now account for around 20% of measures including balance sheet and revenue, von Moltke said Thursday.

“It’s a cumulative investment that we see pay off. So you’ve seen, for example, in hiring bankers, corporate finance bankers, we’ve… increased that footprint, and so we expect to benefit there,” he told CNBC. “Similarly, on the market side, we’ve been making some really strategic investments, and we’re seeing that pay off already.”

He added that the U.S. business still has room to “deliver and crystallize in the future,” agreeing that he shares the optimism of transatlantic counterparts over the regional outlook.  Following U.S. President Donald Trump’s return to office, market participants are now watching whether the White House leader will make good on his pledge of lighter touch regulation — and the potential impact of such a step on banks operating in the U.S. commercial space and on their competitiveness over European lenders.