Deutsche Bank's new boss John Cryan has today set about cleaning up Germany's biggest bank.
The bank CEO has flagged a record pre-tax loss of €6 billion in the third quarter and also warned investors to brace for a possible 2015 dividend cut.
Cryan became chief executive in July with a promise to cut costs. He is accelerating plans to shed assets and exit countries to shrink the bank, while also preparing to axe about 23,000 jobs or a quarter of its staff, sources told Reuters last month.
"The news is not good, and I expect a number of you will be very disappointed by it," Cryan said in an open letter to staff.
He warned them bonuses would be cut as staff needed "to share something of the burden" of the losses.
It is another blow to corporate Germany, which has been rocked by a scandal at Volkswagen after the car maker admitted to cheating US emissions tests.
The share price of Germany's flagship lender has suffered recently under stalled reforms and rising costs on top of fines and settlements that have pushed the bank to the bottom of the valuation rankings of global investment banks.
But traders and analysts said today's share rise was because Cryan was taking action to tackle long-standing problems, and it also appeared unlikely the bank would have to raise capital soon, despite the losses.
It will take a €2.3 billion writedown at its investment banking unit, 16 years after acquiring the US investment bank Bankers Trust.
It will also take a further €3.5 billion impairment on its Postbank retail bank and €600m more on a stake in China's Hua Xia Bank. It has earmarked the two assets for disposal.
As in the second quarter, the bank is setting aside another €1.2 billion for fines and settlements. It has been dogged by legal worries including investigations into possible manipulation of benchmark currency rates and dealings with Iran.
Cryan said he expected litigation costs "to continue to burden us in future quarters."
The costly litigation and turmoil in Asian markets has constrained Cryan's ability to reform. His job has been even more difficult because Deutsche is also the last big investment bank to try to slim down, long after rivals such as UBS, Barclays and Credit Suisse.
But after initially sticking with an expensive universal banking model, it has reined in ambitions and worked to trim operations.
After tax, Deutsche said it is expecting a loss of €6.2 billion for the quarter. Without the impairments of goodwill and intangibles it would have lost €400m in the three months from July to September.
Analysts on average had expected about €1 billion in third-quarter net income, based on three estimates, according to Thomson Reuters data.
Cryan said in July that raising additional equity would not solve the bank's core problem of low financial returns. But some analysts said a capital increase is inevitable - probably next year.
The bank also warned investors, who have enjoyed stable dividend payments since 2009, it may cut or suspend payouts in 2015.
Deutsche will report its results on October 29 along with more details of its so-called Strategy 2020, which will include massive and expensive cuts in its overhead operations, its retail and its investment bank.
