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article imageDeutsche Bank insists best to come after first profit in years

By Tom BARFIELD (AFP)     Feb 1, 2019 in Business

Germany's biggest lender Deutsche Bank reported Friday a profit for the first time in four years, with executives looking to convince investors and media a phase of "controlled growth" has begun.

The firm reported 267 million euros ($305 million) net profit, compared with a loss of 751 million in 2017 and 8.2 billion euros over the previous two years combined.

The result, however, was short of expectations of 505 million euros from analysts surveyed by Factset.

Weighing on earnings was a final quarter last year that brought losses of 425 million euros, with Deutsche blaming "challenging financial markets" and "negative" media headlines.

But there was no repeat of the massive 1.4-billion-euro charge related to tax reform in the US that hit in late 2017.

Deutsche's performance still fails to match major American competitors or European rivals such as Spain's Santander or BNP Paribas in France.

Revenues fell four percent, to 25.3 billion euros, but the bank was able to increase pre-tax profit eight percent to 1.3 billion euros.

Much of that increase was down to a cost-cutting drive, which saw outgoings fall five percent to 23.5 billion euros as bosses slashed almost 6,000 jobs, bringing headcount to 91,700.

Deutsche said it had a comfortable capital ratio -- a measure of a bank's cash buffer to withstand sudden economic shocks -- of 13.6 percent.

- 'Discipline and integrity' -

"We achieved all of our objectives for 2018," said chief executive Christian Sewing, who replaced crisis-fighting British boss John Cryan last April after years of struggle to turn the bank around.

"A new phase is beginning, one of controlled growth" in all the bank's sectors, he added.

"We won't lose sight of cost discipline and integrity," Sewing promised.

The Deutsche boss refused to be drawn by analysts or journalists on a potential merger with Frankfurt rival Commerzbank, after reports the German government favours a tie-up to create a new national champion.

"We have our plan and we are working very hard on realising this plan," Sewing said.

Executives aim to continue cutting costs, with the payroll set to fall below 90,000 in 2019, while betting on a solid performance from Deutsche's strongest areas in investment banking.

The lender claims a place among global leaders in fields such as managing international financial flows or bond trading.

Although early 2019 has been marked by pessimism about global growth prospects, Deutsche will target a return on tangible equity of four percent -- a broad measure of profitability -- compared with 0.5 percent in 2018.

The plans will "certainly be tested" if the "extremely adverse" market conditions seen in the last quarter persist, Sewing acknowledged.

- Legal woes dispelled -

Equinet Bank analyst Philipp Haessler told AFP he was "not optimistic that the bank will achieve its return on equity target. To do that it would have to make significant gains in market share, which will be difficult."

Deutsche can point to one major factor in its favour this year, as it sees itself largely free of the thicket of legal entanglements that throttled performance in the past.

By the end of 2018 its provisions for litigation costs were down to 1.2 billion euros, compared with 7.6 billion euros at the end of 2016.

Board member Karl von Rohr said some 19 out of 20 major legal risks threatening the bank had been "completely or partially resolved".

Deutsche sees no danger from recent scandals linked to the so-called "Panama Papers" leak of information about offshore companies, which saw prosecutors raid the bank's twin-tower headquarters in Frankfurt in November.

Neither do bosses judge there is a major risk from a money-laundering scandal at Danske Bank.

Nevertheless, investors were not immediately won over by the board's upbeat tone, with shares in Deutsche shedding 3.15 percent by 1:05 pm (1305 GMT) to 7.50 euros -- close to their all-time low.

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