Deutsche Bank, at least by Deutsche Bank standards, reported some good news today: Executives touted that they’ve met or exceeded recent goals, and the German lender posted its first annual profit since 2014. But meetings with analysts and journalists suggest that many think the only way forward is a shotgun wedding with another bank.
The Frankfurt-based lender said it generated €341 million ($391 million) of net income in 2018, compared with a loss of €735 million the year before. Deutsche Bank also said it’s ahead of schedule in cutting costs and headcount, as it now has some 6,000 fewer employees than a year ago. However, revenue fell for an eighth-straight quarter, showing the difficulties CEO Christian Sewing faces in restoring growth and long-term profitability.
Deutsche Bank shares slipped 3% after reporting its latest results, which also featured a €409 million fourth-quarter loss that exceeded some analyst estimates.
Speculation has mounted that a government-brokered merger with Commerzbank will be necessary, though it’s not clear whether it would provide a lasting solution for either beleaguered institution. Deutsche Bank executives declined to comment on such matters during calls with analyst and media today, but the share prices for both banks declined yesterday after Bloomberg reported that such a deal could happen by mid-2019.
Commerzbank is part-owned by the German government and its shares have slumped as it tries to turn its business around. A concern is that both lenders will struggle if the economy slows, making emergency action even more difficult. There are signs that global trade tensions are beginning to impact Germany, Europe’s largest economy and an export powerhouse.
Deutsche Bank has had other troubles as well, such as allegations of money laundering, failed stress tests, and ratings downgrades. Deutsche Bank CFO James von Moltke told Bloomberg Television that the raid of the company’s headquarters last quarter as part of a money laundering probe had impacted its business during that three-month period, though he said the bank had made some progress in easing those concerns among customers.
“We feel we’re in control of our destiny,” the CFO told Bloomberg. And while declining to comment on merger rumors, he admitted that “over time, mergers, consolidation in the European banking sector would be sensible.”