 "Duestche Bank, Germany")
Deutsche Bank fell further behind its Wall Street rivals in 2016, lagging their strong rebound in bond trading in the last three months of the year and increasing pressure on CEO John Cryan ahead of an expected strategy update this spring.
Germany's flagship lender posted a net loss of 1.9 billion euros ($2.1 billion) in the final quarter of 2016 as legal costs for past misdeeds weighed heavily on results.
Deutsche Bank shares fell more than 5 per cent in early Thursday trading. Analysts had expected the bank to post a loss of 1.16 billion euros.
Revenues at its cash cow bond trading division were up 11 per cent in the quarter as it benefited from a surge in trading across interest rate products, commodities and foreign exchange (FICC), as investors reacted to Donald Trump's surprise victory in the US presidential election.
But it lost market share to Wall Street banks, some of which more than doubled bond revenues, in part as the German lender pared back its investment bank to reduce risk, cutting products and ties with thousands of clients.
While Deutsche Bank in 2013 ranked third globally for FICC trading, it had slipped to sixth place by mid-2016, according to the latest data from industry analytics firm Coalition.
"We are optimistic after a promising start to this year," CEO Cryan said, adding that in key areas, such as its capital markets business, performance was strong in January.
But Deutsche Bank has offered little insight yet into its future strategy, which investors expect to be updated in the spring after an expected accord of international banking supervisors on new capital rules.
The bank rules will determine whether Deutsche Bank can afford to reintegrate its retail unit Postbank, which it had put up for sale to lift its capital ratios, but would prefer to keep. They will also determine whether Deutsche will have to float its asset management unit to free up capital.
BIG RISK
The bank's strategy is a concern not just to shareholders, but also to Germany after fears of mounting fines last year prompted speculation it could even need a state bailout.
With a balance sheet of 1.6 trillion euros, Deutsche was labelled last year as the riskiest big global bank by the International Monetary Fund and the organisation's head, Christine Lagarde, took the unusual step of questioning the bank's business model, urging it to "decide what size it wants to have".
Cryan launched a sweeping revamp in October 2015, aiming to slash costs by cutting staff, overheads and selling off non-core businesses.
But more than a year on, with staff numbers down only 1 per cent, management is being forced to find new ways to increase profitability. The lender vowed on Thursday to bring down its cost base to less than 22 billion euros in 2018 from 24.7 billion in 2016.
It had already slashed 2016 bonuses, helping bring down total remuneration by 11 per cent.
While Deutsche Bank has drawn a line under some major legal headaches, earmarking 4.7 billion of total litigation reserves of 7.6 billion euros for settlements such as over the sale of toxic mortgages and sham Russian trades, it is not yet out of the woods.
New civil lawsuits have emerged, forcing Deutsche to hike provisions for possible future legal action - so-called contingent liabilities - by 38 per cent to 2.2 billion.
"Whilst 2015 and 2016 were peak years for litigation, 2017 continues to be burdened by resolving legacy matters," the bank said.
In equities trading, Deutsche Bank saw revenues decrease in the quarter as hedge fund activity retreated, while revenues from corporate and investment banking edged up, despite the bank missing out on advising clients on some large deals.
($1 = 0.9266 euros)
