Deutsche Bank warned of a € 300m impact on profits in 2021 as Germany’s largest lender digested the financial fallout from a court verdict that overturned past increases in current account fees in its domestic market.
The warning is the second in the past two months to lower the bank’s annual outlook. In April, he revealed he would miss his 2021 cost reduction target of € 400m as he will have to pour more than expected into EU bank bailout funds. It will also pay 70 million euros to the German private bank deposit insurance scheme, which suffered a blow of more than 3 billion euros following the collapse of the Greensill bank.
Prior to Thursday’s announcement, analysts were forecasting pre-tax profit of 2.7 billion euros in 2021, up from 1 billion euros last year. Shares of the lender, which have risen by more than a third this year, fell 0.6% in afternoon trading in Frankfurt.
James von Moltke, chief financial officer, said he was “less and less optimistic” that statutory payments to EU bank bailout funds would decline next year. Deutsche and other lenders are pushing Brussels to reduce these contributions.
“I don’t think there is a political consensus around changing this tax,” von Moltke told the Goldman Sachs European Financials Conference.
As a result, Deutsche could also miss its cost reduction target for 2022, which was not raised by € 300m until December, in part based on the assumption of a bank tax cut. next year.
Thursday’s warning follows an April 27 ruling from Germany’s highest court, which ruled past increases in checking account fees were illegal. The judges rejected a ten-year-old practice of banks unilaterally changing their terms and conditions and treating lack of customer response as a deal.
The lawsuit was brought by a consumer rights group against Deutsche Bank’s Postbank retail brand. The move 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 set aside a provision of 100 million euros for possible compensation claims in the second quarter. On top of that, the turnover of the retail division would be 200 million euros lower this year, he said.
“We expect that by the fourth quarter we will have reinstated these expense agreements [that were nullified by the court ruling]. We therefore consider the loss of income to be temporary.
Despite the additional headwinds, von Moltke is optimistic about the prospects for Deutsche, which is in the midst of a three-year recovery plan. At the start of the year, the lender posted its highest quarterly profit since 2014, thanks to a boom in bond trading, good results in asset management and a clear exit from its exposure to the implosion of the Archegos Capital family office .
“We’ve come to this point where the momentum is in our favor,” he said, adding that performance would “normalize” in the second quarter. However, von Moltke pointed out that the “underlying trend” of an improving investment bank was “still present”.