Deutsche Bank will suspend its prized capital targets so it can “support clients and the broader economy in times of crisis”, Germany’s biggest lender said on Sunday night, as it pre-released better than expected first-quarter earnings.
The Financial Times reported on April 1 that Deutsche was revisiting that strategic plan, which promises 18,000 job cuts by 2022, as the coronavirus pandemic threatens a fresh wave of loan losses at Europe’s banks.
In a statement on Sunday night, the bank said it was “reviewing” its capital and leverage ratio targets “in anticipation of business opportunities and elevated client demand and in light of the current macroeconomic environment”.
Deutsche had promised to keep its Common Equity Tier 1 ratio, a key risk-based measure of financial strength, above 12.5 per cent. The bank was rewarded by analysts for closing 2019 with a better than expected CET1 ratio of 13.6 per cent.
“We are firmly committed to mobilising our balance sheet to support our clients, who need us now even more,” chief executive 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 per cent, without weakening our strong balance sheet. ”
The bank also said it was “unlikely” it would reach its 2020 target of having a leverage ratio of 4.5 per cent, a level that implies €45 of equity for every €1,000 of assets.
Deutsche, which Mr Sewing vowed would go “on the offensive” in 2020, is expected to follow US rivals by announcing an increase in lending for the first quarter, as corporate clients draw down their revolving credit lines in order to have cash to trade through the coronavirus crisis.
An increase in lending reduces a bank’s capital ratios, since the ratios are calculated as equity divided by a risk-based measure of assets.
Deutsche said its CET1 ratio fell to 12.8 per cent by the end of March, in line with analysts’ expectations and comfortably above its 10.4 per cent regulatory minimum.
Deutsche said group profit for the first quarter came in at €206m on a pre-tax basis, better than consensus expectations for a pre-tax loss of €269m but worse than the €292m pre-tax profits it made in the same period a year earlier. Net profit for the first quarter of 2020 was €66m, down from €201m in the first quarter of 2019.
The bank took €500m of provisions for credit losses during the most recent quarter, up from €140m in the first quarter of 2019, as it prepared for a wave of bad loans triggered by the coronavirus crisis.
Deutsche said it remained committed to its other turnround targets, including those on cost-cutting, and that its capital and leverage targets for 2022 remain in place.
The bank, which is set to report earnings on Wednesday, released key numbers after a Sunday evening board meeting because they differed materially from analysts’ expectations, a spokesman told the FT.