Deutsche Bank warned of a 300 million euro loss to its 2021 profits as Germany’s largest bank absorbed the financial fallout of a court ruling that reversed previous increases in current account fees in its home market.
The warning is the second in the past two months to cut the bank’s full-year forecast. In April, it revealed that it would miss its 2021 cost-cutting target of €400m due to having to pay more than expected in EU bank bailouts. He will also pay 70 million euros to Germany’s private bank deposit insurance scheme, which has suffered more than 3 billion euros from the collapse of Grensel Bank.
Before Thursday’s announcement, analysts had expected pre-tax earnings of 2.7 billion euros in 2021, compared to 1 billion euros last year. Shares of the bank, which have risen more than a third this year, fell 0.6 percent in afternoon trading in Frankfurt.
James von Moltke, chief financial officer, said he was “decreasingly optimistic” that legal payments to EU bank rescue funds would decline next year. Deutsche and other lenders are pressing in Brussels to cut those contributions.
“I don’t think there is a political consensus about making a change to that tax,” von Moltke said at the Goldman Sachs European Financial Conference.
As a result, Deutsche may also miss its cost-cutting target for 2022, which was raised by just 300 million euros in December, based in part on the assumption that the bank tax will be reduced next year.
Thursday’s warning came on the heels of a ruling by Germany’s highest court on April 27, which ruled that previous increases in current account fees were illegal. Rulers have dropped a decade-long practice where banks unilaterally changed their terms and conditions and treated customer non-response as an agreement.
The lawsuit was filed by a consumer rights group against the Postbank retail brand of Deutsche Bank. The country’s banking watchdog BaFin warned last month that the ruling could wipe out up to half of the German banking sector’s annual profits.
Von Moltke told analysts Thursday that Deutsche will book a €100 million provision for potential compensation claims in the second quarter. Moreover, the retail division’s revenue will decrease by €200 million this year, he said.
“We anticipate that by the fourth quarter, we will have these fee agreements back in place [that were nullified by the court ruling]. So we see that the lost profits are temporary.”
Despite the additional headwinds, von Moltke is optimistic about the prospects for Deutsche, which is in the midst of a three-year turnaround plan. At the start of the year, the lender posted its highest quarterly profit since 2014, thanks to a boom in bond trading, solid results in asset management and a clean exit from its exposure to the collapse of the family office Archegos Capital.
“We’ve reached that point where momentum is in our favor,” he said, adding that performance “will return to normal” in the second quarter. However, von Moltke stressed that the “fundamental trend” of a sophisticated investment bank “still exists.”