Deutsche Bank warns of 67% drop in profits compared to last year as the coronavirus decimates performance but it expects to post a first quarter profit

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  • Deutsche Bank said in a pre-release statement Sunday that it expects its net income to drop to €66 million ($72 million) as the impact of coronavirus takes a toll on earnings.
  • But the German bank said it’s current forecasts beat market expectations and expects to post a firsdt-quarter profit.
  • The surprise statement said it was “difficult” for the bank to reflect changes to its capital plans amid a 67% drop in profits compared with Q1 2019. 
  • The German lender said its capital equity tier ratio — a measure of a bank’s strength from a regulatory point of view — fell from 13.6% to 12.8% compared to the previous quarter. 
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German banking giant Deutsche Bank has warned investors of a 67% plunge in net income last quarter due to the coronavirus, although it expects to post a first-quarter profit, ahead of reporting its full earnings on Wednesday. 

In a surprise pre-release statement on Sunday, the German bank said it expects its net profit to be €66 million ($72 million), compared to €201 million in the same period last year. 

Deutsche Bank’s shares surged 10.6 per cent at pre-market to €6.07 per share as the bank said it’s earnings will beat analyst expectations. The share is currently trading around €5.95 per share as of 8.00 a.m ET.

Deutsche Bank expects profit before tax to be €206 million, down from €292 million last year.

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Capital requirements

In the pre-release announcement, Deutsche Bank reported a fall in its Common Equity Tier 1 (CET1) ratio, a measure of a bank’s financial strength from a regulatory point of view, from 13.6% to 12.8% over the past three months. 

“We are firmly committed to mobilizing our balance sheet to support our clients, who need us now even more,” Deutsche Bank CEO Christian Sewing said in the statement.

“Our decision to do so means that our Common Equity Tier 1 ratio may temporarily dip below our target minimum of 12.5%, without weakening our strong balance sheet,” he added.

“With our current ratio of 12.8%, we are comfortably above our minimum requirement of 10.4%. We’re convinced that this is in the best interests of all our stakeholders.”

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Deutsche Bank said it is unlikely to reach its 2020 fully-loaded leverage ratio target. 

The German lender said: “This potential additional balance sheet growth also means that the bank is unlikely
to reach its 2020 fully-loaded leverage ratio target of 4.5%, absent regulatory adjustments to the leverage ratio calculation which may increase the bank’s reported ratio.”

“Given the temporary nature of the aforementioned capital items, the bank will continue to work towards its 2022 targets of a 12.5% CET1 ratio target and 5% leverage ratio,” the lender added. 

Deutsche Bank has had a challenging few years months including a restructuring and steep losses. It announced it would be cutting 18,000 jobs last year as part of  a “radical transformation” aimed at restoring consistent profitability and improving returns to its shareholders.

Credit Suisse was the first major European back to post earnings last week. It showed a 75% increase in profits in the first quarter of 2020 but expects a significant fall in profitability as the year goes on and the coronavirus uncertainty mounts.

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