Its commitment to investment banking isn’t working out so well
Germany’s Deutsche Bank announced late Wednesday that it will take a $6.5 billion charge in the third quarter, which will impact its earnings in the period.
The lender said the resulting record $7 billion loss could force “a reduction or possible elimination” of its common-share dividend this year.
Deutsche Bank said that the majority of the write-downs are due to tougher regulation that requires it to set aside more capital. That’s hampering its investment-banking business, along with other assets.
All major banks have seen a drop in profitability since the financial crisis, in part because of increased regulation, but investment banking has been hit especially hard. Deutsche Bank has been one of the few large European banks to stick with investment banking at a time when the business is generating very low returns, especially in Europe.
The cost of shedding the company’s Postbank retail unit also factored into the anticipated losses. The bank also set aside $1.3 billion as legal reserves.
In June, the bank appointed Briton John Cryan, an investment banker, as its next CEO. Wednesday’s announcement indicate efforts by the new leadership to simplify and narrow the scope of its operations while boosting profitability, according to The Wall Street Journal.