Deutsche Bank warns of €300m hit to profits after court ruling

Deutsche Bank warned of a €300m hit to its 2021 profits as Germany’s largest lender digested the financial fallout of a court verdict that nullified past increases of current account fees in its home market.

The warning is the second in the past two months to lower the bank’s full-year outlook. In April, it disclosed that it would miss its 2021 cost-cutting target by €400m due to it having to pay more than expected into the EU’s bank bailout funds. It will also shoulder a €70m payout to Germany’s private banking deposit insurance scheme, which suffered a hit of more than €3bn from the collapse of Greensill Bank.

Prior to Thursday’s announcement, analysts were expecting pre-tax profit of €2.7bn in 2021, compared with €1bn last year. Shares in the lender, which are up more than a third this year, were down 0.6 per cent in afternoon trading in Frankfurt.

James von Moltke, chief financial officer, said he was “decreasingly optimistic” that statutory payments to the EU’s bank bailout funds will decline next year. Deutsche and other lenders are lobbying in Brussels to lower those contributions.

“I don’t think there’s a political consensus around making a change to that levy,” said von Moltke at the Goldman Sachs European Financials Conference.

As a consequence, Deutsche may also miss its 2022 cost-cutting target, which was raised by €300m only in December, partly based on the assumption that the banking levy will fall next year.

Thursday’s warning follows an April 27 decision by Germany’s highest court, which ruled that past increases of current account fees were unlawful. The judges shot down a decade-old practice whereby banks unilaterally changed their terms and conditions and treated customers’ lack of response as agreement.

The court case was brought by a consumer rights group against Deutsche Bank’s Postbank retail brand. The ruling could wipe out up to half of the German banking sector’s annual profits, the country’s banking watchdog BaFin warned last month.

Von Moltke told analysts on Thursday that Deutsche would book a provision of €100m for potential compensation claims in the second quarter. On top of this, the retail division’s revenue would be €200m lower this year, he said.

“We expect that by Q4, we will have re-established those fee agreements [that were nullified by the court ruling]. So we see the lost revenue as temporary.”

Despite the additional headwinds, von Moltke is optimistic about prospects for Deutsche, which is in the midst of a three-year turnround plan. At the start of the year, the lender recorded its highest quarterly profit since 2014, thanks to a boom in bond trading, strong results in asset management and a clean exit from its exposure to the implosion of family office Archegos Capital.

“We’ve gotten to that point where the momentum is in our favour,” he said, adding that the performance would “normalise” in the second quarter. However, von Moltke stressed that the “underlying trend” of an improving investment bank was “still present”.

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