Deutsche Bank warned that its profits in 2021 will be hit by 300 million euros because the largest German bank has digested the financial impact of the court’s decision, which canceled the increase in current account fees in its domestic market in the past.
This is the second time in the past two months that the bank’s full-year outlook has been downgraded. In April of this year, it revealed that it would not be able to achieve its 2021 cost reduction target of 400 million euros due to having to pay more than expected fees to the EU’s bank rescue fund. It will also bear 70 million euros in expenditures for Germany’s private bank deposit insurance program, which suffered more than 3 billion euros due to the collapse of Greensail Bank.
Before the announcement on Thursday, analysts expected pre-tax profits of 2.7 billion euros in 2021, compared with 1 billion euros last year. The bank’s stock price has risen by more than a third this year, but it has fallen by 0.6% in Frankfurt afternoon trading.
Chief Financial Officer James von Moltke said that he was “less and less optimistic” about the statutory payments to the European Union Bank Relief Fund next year. Deutsche Bank and other banks are lobbying in Brussels to reduce these donations.
At the Goldman Sachs European Finance Conference, von Moltke said: “I think there is no political consensus on changing the taxation.”
Therefore, Deutsche Bank may not be able to achieve its 2022 cost reduction target, which raised 300 million euros in December alone, partly due to the assumption that bank taxes will fall next year.
Before issuing the warning on Thursday, the German Supreme Court ruled on April 27 that the increase in current account fees in the past was illegal. The judge rejected a ten-year-old practice in which the bank unilaterally changed its terms and conditions and regarded the lack of response from customers as consent.
The court case was brought by a consumer rights organization against Deutsche Bank’s Postbank retail brand. German banking regulator BaFin warned last month that the ruling could reduce the annual profit of the German banking industry by up to half.
Von Moltke told analysts on Thursday that Deutsche Bank will reserve 100 million euros for potential compensation claims in the second quarter. He said that in addition to this, this year’s retail sector revenue will be reduced by 200 million euros.
“We expect that by the fourth quarter, we will re-establish these fee agreements [that were nullified by the court ruling]Therefore, we believe that the loss of revenue is temporary. “
Despite the additional disadvantages, von Moltke is optimistic about the prospects of Deutsche Bank, which is in the midst of a three-year turnaround plan. At the beginning of this year, the bank recorded its highest quarterly profit since 2014, thanks to the boom in bond trading, strong performance in asset management, and a complete exit from the implosion risk of the family office Archegos Capital.
“We have reached the point where the momentum is in our favor,” he said, adding that the second quarter performance will be “normalized.” However, von Moltke emphasized that the “underlying trend” of investment banking improvement “still exists.”