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Deutsche Bank profits tumble 65%, share price slides as results disappoint

The German lender continues to struggle with chief executive promising a return to form before the end of the year.

Deutsche Bank
Source: Bloomberg

Deutsche Bank (ETR:DBK) reported a 65% decline in net profits, with the bank generating €229 million in the third quarter (Q3) 2018, down from €649 million recorded in the same period a year ago.

The disappointing results prompted CEO Chistian Sewing to reassure investors that Deutsche Bank remains firmly ‘on track to be profitable in 2018, for the first time since 2014’.

Troubling times for Deutsche Bank

Since the financial crisis, the bank has carried out five capital raises, with its most recent being a €8 billion rights issues in April 2017, as Deutsche Bank desperately looks to fill gaping holes in its balance sheet.

The bank continues to implement several cost-cutting measures designed to help return it to profitability, with the management reiterating its commitment to reduce adjusted costs to €23 billion this year and bring that number down to €22 billion in 2019.

The bank also intends to reduce its workforce to well below 90,000 by the end of next year, which will mean scrapping around 5,000 jobs over the next 14 months.

It is clear that the bank’s management still has a lot of restructuring to do though, as net revenues came in at €3.2 billion, slipping 9% versus Q3 2017. The slide in revenues reflects lower volatility and a reduction in client volumes seen in the bank’s corporate and investment banking business during the third quarter this year, the bank said in its earnings report.

Rationale grows for Deutsche Bank-Commerzbank tie-up

Deutsche Bank’s performance is not just troubling for the bank itself, but for German economy and the stability of the wider European banking system.

There is also a significant case to be made for European banks to consolidate, with Italian lender UniCredit (BIT:UCG) and Société Générale (EPA:GLE) of France rumoured to do a deal.

Similar rumours have arisen about the prospect of a mega-merger between Deutsche Bank and its national rival Commerzbank (XETRA:CBK), but dealmakers have poured water on the prospect of a deal happening in the current banking environment.

However, with Deutsche Bank’s disappointing set of results and Commerzbank facing challenges of its own that have seen its share price deteriorate over the course of 2018, a tie-up deal could offer a solution to both banks mounting problems.

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