Deutsche Bank might temporarily miss capital target as impact of coronavirus hits
Deutsche Bank announced first-quarter results were above market expectations, but warned it might temporarily miss its capital requirement target in light of the coronavirus crisis.
In an unscheduled update on Sunday, the German lender said it expects to report group profit before tax of €206m (£179.6m)and net income of €66m (£57.54m). Revenue is expected to be €6.4bn, with provisions for credit losses of €500m.
Deutsche Bank said it was possible it would “fall modestly and temporarily” below its common equity tier 1 (CET 1) target of 12.5 per cent due to the coronavirus-induced recession.
The German lender’s CET 1 ratio was 12.8 per cent at quarter-end, down from 13.6 per cent at year-end. The decline in the ratio included approximately a 30 basis points negative impact from the revised securitisation framework. It also included approximately 40 basis points of items due to the coronavirus pandemic.
“This revised outlook acknowledges that credit extension to support clients at this time could increase risk weighted assets for several quarters,” Deutsche Bank said. “In addition, there are a series of pending and proposed regulatory adjustments which could improve the bank’s reported CET1 ratio.”
The bank also said it was unlikely it would reach its 2020 fully-loaded leverage ratio target of 4.5 per cent, without regulatory adjustments to the leverage ratio calculation.
Last month the bank warned that the economic fallout from the pandemic may affect its ability to meet its financial targets as it undergoes a radical overhaul.
Chief executive Christian Sewing has been leading a dramatic turnaround €7.4bn (£6.7bn) effort. The restructuring involves cutting 18,000 jobs to increase the lender’s focus on corporate banking and slim down its investment banking arm.
Deutsche Bank reaffirmed its other financial targets for the year and will give full details as planned on 29 April.
Investors shrugged off the warning and shares are up 10.84 per cent.