Deutsche Bank makes profit, strengthens capital buffers

FRANKFURT – Deutsche Bank, under pressure from an impending settlement with the U.S. Justice Department, reported 278 million euros ($303 million) in net profit for the third quarter as it strengthened its financial buffers against loss.

The profit contrasted with a loss of 6.0 billion euros a year ago, when the bank had large one-time charges for the fallen value of its investment banking business and other assets.

The profit figure easily beat analyst estimates for a loss of 949 million euros as compiled by financial information provider FactSet. It also exceeded the meagre 20 million-euro profit from the second quarter.

The bank is in the midst of a wrenching restructuring, shedding jobs, cutting costs and withdrawing from some countries. Profits have been hit by high costs for legal settlements, by extremely low interest rates that erode bank profits, and by regulatory demands to set aside more money as a cushion against losses.

“The results for the quarter show the resilience of our operating business in a tough environment and show the progress we are making toward restructuring the bank,” CEO John Cryan said on a conference call with analysts.

He said the results had been overshadowed by talks with the U.S. Justice Department, which reportedly made an initial demand of $14 billion to settle claims related to the bank’s dealings in mortgage-backed bonds in the 2000s. Securities based on mortgages to people with shaky credit led to large losses by investors, who may not have understood all the risks involved in the securities.

Fears that a large settlement could push the bank to raise more capital from investors have weighed on the share price; issuing new shares would dilute existing holdings and is regarded as negative for the share price. The bank has said a capital increase is not on the agenda.

On Thursday, Cryan said that settling the issue was his top priority but added that the timing was not entirely in the bank’s control. The bank gave no update on the matter.

During the third quarter, the bank strengthened its common equity tier 1 capital ratio, a measure of financial resilience, to 11.1 per cent from 10.8 per cent in the quarter before — still below the year-ago figure of 11.5 per cent. The ratio measures capital held against risky investments that could result in losses.

Litigation expenses fell to 501 million euros in the quarter from 1.2 billion euros in the same quarter a year earlier.

Cryan said the bank was “confidently on track” to wind up its non-core assets units by the end of the year as part of its effort to shed riskier investments that are not considered part of the basic business. Winding down the investments set aside in the unit has meant a steady burden on profits, including a loss of 538 million euros in the third quarter.