Deutsche Bank earnings preview

It is likely to have been another tough year for Deutsche Bank (DB), with a loss of €275 million expected for the fourth quarter (Q4), though an overall profit of €380 million is forecast for 2018 as a whole.

This would be a return on tangible equity of less than 1%, a dismal performance. But the absence of a profit warning would be a small form of progress that might lift the shares in the near term.

The bank is in the middle of yet another turnaround programme, under its chief executive Christian Sewing. Cost cuts have been one area of progress, but this is the financial equivalent of patching holes in a leaking boat, and not a long-term remedy for DB’s ills or a recipe for success.

DB’s salvation probably lies more outside its own walls than inside the struggling bank. A merger with Commerzbank has been repeatedly touted as a possibility, but it is not clear how tying up two failing banks will create one successful one. Any merger would require significant capital, and with investors already skittish it is unclear whether a fundraising would be successful.

DB is Germany’s largest bank, and a merger with an institution outside the country would also be difficult, and not just for financial reasons. Any combination with another bank would create a cross-border giant that would need significant slimming down. But German labour laws are strict, which would make downsizing difficult, and any potential buyer would need significant firepower. It would also essentially be a foreign takeover, something that would go down very badly with the German electorate and be politically unpalatable for Berlin.

Barring some kind of miracle, DB’s earnings are not likely to include much good news. US banks didn’t have a very strong earnings season in terms of the figures, but lowered expectations meant that their stock did well. DB’s parlous state means even a beat on expectations is not likely to generate much enthusiasm.