Deutsche On The Brink


Image source: Gorodenkoff, Onkamon, Alfonso de Tomas - Shutterstock

What's going on?

On Friday, international banking giant Deutsche Bank announced that it made an annual profit for the first time in four years. But, despite breaking a losing streak, its share price fell 2%.

What does this mean?

In 2018’s final three months, Deutsche Bank lost $469 million – much more than analysts expected – after sales from its investment bank fell by 5%. Deutsche blamed police raids at its headquarters in November hitting its business, leading to the German bank missing overall fourth-quarter sales forecasts.

Elsewhere in Europe, another originally-named bank also floundered on Friday in the wake of attention from the authorities: Danske Bank reported falling profit after an investigation into allegations of money laundering. Although the Danish bank’s annual profit fell, it was well within analysts’ expectations – and Danske’s shares rose 3%.

Why should I care?

For markets: A marriage of convenience.

Deutsche Bank has been plagued by losses in the past year after a series of fines linked to money laundering. The bank’s stock price has fallen to almost half of what it was a year ago. With Deutsche mired in trouble, its executives are preparing for a potential mid-year merger with rival Commerzbank at the German government’s encouragement. While the state hasn’t publicly called for them to unite, it owns a large stake in Commerzbank and has said it’s ready to offer “political support” to help Deutsche Bank. Indeed, several banks across Europe have considered mergers of late.

The bigger picture: Spring cleaning dodgy cash.

Being squeaky clean in banking is expensive business. Just a few weeks ago, US authorities said they were investigating Deutsche Bank’s involvement in Danske Bank’s money laundering ruse. The Danish bank has vowed to clean up its act by allocating up to $307 million to be spent over the next three years preventing it from happening again. Deutsche Bank is a much larger business than Danske, so cleaning house will likely cost it a lot more

Originally posted as part of the Finimize daily email.

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