Deutsche Bank Reports Weaker 2024 Profit Amid Legal Expenses

Germany’s largest lender, Deutsche Bank, has reported a disappointing profit in the last quarter of 2024. The bank’s net profit attributable to shareholders fell to €106 million ($110.4 million), significantly lower than the €282.39 million forecast by analysts. This marks a sharp decline from the third-quarter profit of €1.461 billion.

For the full year of 2024, Deutsche Bank’s net profit attributable to shareholders decreased by 36% to €2.698 billion. Revenue for the fourth quarter stood at €7.224 million, slightly above the analysts’ forecast of €7.125 billion. However, litigation costs of €594 million eroded this gain. Year-on-year, full-year revenue grew by 4% to €30.1 billion.

The bank’s CFO, James von Moltke, acknowledged high non-operating costs in 2024. “We are not happy with one-off expenses or surprises. Most of these issues arise from the past, sometimes the distant past,” von Moltke told CNBC’s Annette Weisbach.

The PostBank takeover litigation matter, for instance, cost Deutsche Bank around €900 million on a net basis in 2024. “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,” von Moltke added.

Despite the revenue and profit declines, Deutsche Bank remains optimistic, setting a cost-income ratio target of below 65% for 2025, down from its initial goal of below 62.5%. The bank also launched a €750 million share buyback, signaling confidence in the long-term value of its stock.

Other highlights from the fourth quarter include a profit before tax of €583 million, down 17% year-on-year, and provision for credit losses of €420 million, down 14% year-on-year. The CET 1 capital ratio, a measure of the bank’s solvency, remained stable at 13.8%.

Deutsche Bank’s investment banking revenues continued to excel, with a 30% year-on-year increase to €2.4 billion in the fourth quarter. For the full year, investment banking revenues rose by 15% year-on-year to €10.6 billion, reinforcing its status as a key revenue driver.

The strong performance in investment banking is particularly significant as European banks confront challenges from the European Central Bank’s ongoing monetary policy adjustments and a stagnant economic outlook for Europe. Deutsche Bank CFO James von Moltke shared the frustration shared across Europe over the lack of growth and competitiveness.

German banks are navigating a challenging economic environment characterized by political uncertainties ahead of the impending general elections in February. Questions surround the fate of Germany’s second-largest lender, Commerzbank, where UniCredit has been increasing its stake since September, raising speculation of a potential takeover.

Deutsche Bank could potentially benefit from such developments, given the ongoing uncertainty in the German banking sector.

ING analysts predict that banks focusing on fee-based income and potential mergers and acquisitions will fare better in 2025. This includes banks in key European markets like Germany, Italy, Spain, and France.

The strong tailwind from higher interest rates has waned, forcing banks to adapt and diversify their income streams. Deutsche Bank’s robust performance in its investment banking division is seen as a strategic move to mitigate these challenges.

While Deutsche Bank’s fourth-quarter results were below expectations, the bank remains focused on long-term strategic goals. With increased litigation costs in 2024 now largely behind it, Deutsche Bank is positioning itself for a more stable and profitable future.

As the European economic landscape continues to evolve, Deutsche Bank’s ability to capitalize on investment banking opportunities and adapt to changing market conditions will be crucial.