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Apr 27, 2020

Europe Bank: Deutsche Bank warns coronavirus could impact its capital target as profit falls from a year ago

Silvia Amaro

GP: Christian Sewing, chief executive officer of Deutsche Bank AG
Christian Sewing, chief executive officer of Deutsche Bank AG, pauses as Germanys biggest bank announces full year earnings in Frankfurt, Germany, on Friday. Feb. 1, 2019. Deutsche Banks revenue contracted for an eighth straight quarter in the final months of last year, complicating Chief Executive Officer Christian Sewings plan to turn around the lender through cost cutting. Photographer: Krisztian Bocsi/Bloomberg via Getty Images
Krisztian Bocsi | Bloomberg | Getty Images

Deutsche Bank said it expects to report a fall in net income in the first quarter from a year ago, and will set aside a significant amount for potential loan losses when it reports full earnings Wednesday.
It also warned that it could miss its capital target in the future, as a result of Covid-19.
In a prerelease Sunday, the German bank said it expects to report net income of 66 million euros ($71.56 million) for the first quarter of 2020, compared with 201 million euros in the first quarter of 2019.
Revenues are expected to come in at 6.4 billion euros.
The bank also set aside 500 million euros in provisions for credit losses. It’s a figure that is being closely watched by investors this earnings season as banks prepare for the financial impact of the global coronavirus pandemic.
It will give full details of its results on Wednesday as scheduled.
Over the last decade, the embattled lender has faced restructuring, higher competition, litigation charges and lower market share. Deutsche Bank ended 2019 with a full-year net loss of 5.3 billion euros.
Deutsche Bank’s share price has fallen over 25% in the last 12 months.

Lower capital provisions

Deutsche Bank also said Sunday that its common equity tier 1 ratio — a metric of bank solvency — fell to 12.8% at the end of the first quarter, from 13.6% at the end of 2019.
“The decline in the CET1 ratio in the quarter included approximately a 30 basis points negative impact from the revised securitization framework and approximately 40 basis points of items precipitated by the Covid-19 pandemic,” the lender said in its statement.
Going forward, Deutsche Bank said it might present a lower CET1 ratio, below its target of 12.5%,
“The short-term implications of the COVID-19 pandemic make it difficult for the bank to accurately reflect the timing and the magnitude of changes to its original capital plan,” it said. However it added that it “remains committed to maintaining a significant buffer above its regulatory requirements at all times.”
The German bank also said that it is “unlikely” it will reach its 2020 fully-loaded leverage ratio target of 4.5%. This metric measures a bank’s financial health.

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