Postbank hass stops German Bank's winning series
Since the beginning of 2020, German Bank has reported a profit in every quarter. However, a loss was reported for the last quarter. This is not related to the restructuring course. The cause is the familiar problem child Postbank. The German Bank, however, is not deterred from its annual goals, including the planned dividend payout to its shareholders.
The shadows of the past weigh heavily on the quarterly balance sheet of Deutsche Bank: A billion-dollar liability for a lawsuit over the 2010 acquisition of Postbank resulted in a loss of 143 million Euro in the second quarter. Excluding this liability, the pre-tax profit amounts to 1.7 billion Euro, as the bank reports. In the second quarter of 2023, the bank reported a pre-tax profit of 1.4 billion Euro.
This was the first quarterly loss since the beginning of 2020. The bank had announced in April that it would repay 1.3 billion Euro to former Postbank shareholders. The operating business of the investment bank performed well, with earnings exceeding the second quarter of 2023 by ten percent, reaching 2.6 billion Euro.
"Still on the right track"
Deutsche Bank CEO Christian Sewing sees the institution on the right track: "We are still on the right track to achieve our goals for 2025 - including the planned dividend payout to our shareholders," he emphasized. With the loss, which was only half as high as analysts had forecast, a series of 15 profitable quarters came to an end.
Sewing has pushed for cost reductions in the bank in recent years. This cost-cutting measure will be continued: "We also see room for further savings in the cleaned-up costs, as our efficiency program progresses," said CFO James von Moltke. Every step the institution takes to become more efficient will provide additional room for investments, added Sewing in a letter to employees.
In pre-market trading at Lang & Schwarz, Deutsche Bank shares fell by 1.5 percent. A trader described the numbers as mixed.
Investment banking drives the business
Deutsche Bank is not alone in seeing growth in investment banking. The business of investment banking has been shining at many US institutions. The business of mergers and acquisitions advisory has attracted worldwide attention, with US banks like J.P. Morgan and Goldman Sachs also benefiting. Analysts expect the investment bank to remain the driving force for the business of the German Bank by 2026.
The bank had admitted in April that the 2008 initiated and 2010 completed acquisition of Postbank could be an expensive aftermath for it. The background is a legal dispute before the Higher Regional Court of Cologne (OLG). This court hinted in a hearing that the Postbank shareholders might have been entitled to a higher purchase price. The repayment amount was estimated to be up to 700 million Euro, in addition to accrued interest of around 600 million over 14 years.
Court initiates settlement talks
According to the bank's statement, the court has initiated settlement negotiations. The bank is "carefully" considering whether to participate, although it continues to hold the view of the plaintiffs "forcefully" as incorrect. If no out-of-court settlement is reached, the OLG will make a decision on August 21.
With the takeover of Postbank, German Bank intended to expand its customer base and make the business less dependent on ups and downs in investment banking. However, hopes were not fulfilled. Instead, Postbank kept making negative headlines. Last year, Postbank-IT was supposed to be integrated into that of Deutsche Bank. Thousands of Postbank customers complained that they couldn't access their accounts online for weeks. This even prompted the Financial Supervisory Authority (Bafin) to intervene.
- Despite the loss reported in the last quarter, Christian Sewing, the CEO of Deutsche Bank, remains optimistic about achieving the bank's annual goals, including the planned dividend payout to shareholders, as he believes they are still on the right track towards their 2025 objectives.
- The legal dispute over Deutsche Bank's 2010 acquisition of Postbank has resulted in a potential liability of up to 1.3 billion Euro, which is a significant factor contributing to the bank's loss in the recent quarter.
- Deutsche Bank's investment banking sector continues to be a driving force for the overall business, with earnings increasing by ten percent compared to the second quarter of 2023, showcasing the strong performance of this segment within the German Bank.
