Reducing the value of assets and lawsuit expenses combined to push Deutsche Bank into a hefty fourth quarter loss.
The bank today reported a loss of €2.15 billion for the three months from October to December quarter.
This compared to a €186m profit a year ago and analysts' expectations of a bare profit of €62m.
Deutsche Bank is reshaping its business to keep larger financial buffers against losses.
Meeting the new requirements means dropping some risky investments and assets. To do that, the bank took accounting losses of €1.9 billion for the fallen value of businesses it had acquired before 2003, and for risky assets and investments that it is in the process of selling off.
Expenses for litigation the bank is facing came to €1 billion. The bank faces lawsuits and investigations along with other big banks over the manipulation of the London Interbank Offered Rate interest benchmark in past years. The rate is used to price trillions of dollars in global contracts.
Despite its reverse in the fourth quarter, the bank did post a net profit for the full-year of €665m, though that was way down on 2011's €4.32 billion.
But on the revenue front, Deutsche Bank fared better. In the fourth quarter, revenue rose 14% to €7.9 billion from €6.9 billion. Full year revenue rose to €33.74 billion from €33.22 billion.
Co-chief executives Juergen Fitschen and Anshu Jain, who took over from Josef Ackermann last year, said the performance of the bank's core business was otherwise strong, and management recommended an unchanged dividend to shareholders of 75 euro cents a share.
They said the losses came from "the most comprehensive reconfiguration of Deutsche Bank in recent times."
Jain said that the bank's outlook for 2013 is better than it was at the same time in 2012, with the US economy recovering and a calmer financial market backdrop over Europe's debts. However, he warned on a conference call with analysts that the bank's restructuring was "a journey that will take years, not months."
Like all global banks, Deutsche Bank is being pushed from an international effort, known as Basel III, to hold more capital as a buffer against losses. Basel III is a response to the financial crisis that began in 2007 when banks started reported big losses on mortgage-backed securities in the US and worsened with the collapse of American. investment bank Lehman Brothers.
Building larger capital buffers can mean either raising capital by selling new shares, or by exiting risky investments and holdings. Risk is also assessed so the more risky a security or asset is considered, the more capital that must be held.
Deutsche Bank has put many of these assets in a separate unit which will manage their disposal.
Jain said the bank's efforts during the year at selling off or writing down risky investments was the equivalent of selling €8 billion in new shares.
The bank has also announced layoffs and is reducing costs by streamlining its computer systems and office holdings.