* Bank aims for 12 pct ROE in 2015 vs 2 pct in 2013
* Investors encouraged but legal concerns weigh
By Thomas Atkins
FRANKFURT, Jan 21 Deutsche Bank has
made 2014 into a make-or-break year for co-Chief Executives
Anshu Jain and Juergen Fitschen, who have stuck to ambitious
targets for the bank that could be threatened by its long list
of legal problems.
Germany's biggest bank, under attack from regulators and
politicians over its culture and litigation issues, reported a
surprise fourth-quarter loss this week.
Despite the loss, Jain has stuck to the bank's reform
targets for 2015, which include cost-cutting and achieving a
return on equity of 12 percent, six times higher than in 2013.
The big gap between Deutsche's aspirations and its current
state has enticed investors to bet on a turnaround in the hope
it will lift the bank's shares.
Deutsche's legal troubles and poor performance were a
talking point at a reception in Frankfurt on Monday evening
attended by European Central Bank President Mario Draghi and
Germany's biggest power brokers - Finance Minister Wolfgang
Schaeuble, Bundesbank President Jens Weidmann, Commerzbank CEO
Martin Blessing and hundreds of executives. Deutsche Bank's two
CEOs were noticeably absent.
The bank has made progress in slimming down its balance
sheet but the regulatory issues, such as a global investigation
into alleged currency market manipulation, could mean more money
has to be set aside to cover any related costs.
"(The CEOs) are doing a damn good job in terms of
deleveraging and trying to get the risk-weighted assets down and
trying to realign the businesses where they feel they can make a
meaningful difference," Andrea Williams, European equity fund
manager at Royal London Asset Management, said.
"Our concerns are the outstanding litigation and do they
have to provide more to that through the various things they're
involved in - the FX scandal and the other corporate problems,"
The bank paid around 2.1 billion euros in fines in December
alone but new potential liabilities keep piling up. The forex
probe and other potential problems have led analysts and
investors to forecast 1.4 to 2 billion euros more in settlement
costs for 2014 and 2015.
Deutsche is about one-third of the way through a crash-diet
plan launched in June to cut 250 billion euros ($338.61
billion)from its balance sheet. The faster the bank trims, the
easier it is for the bank to meet regulators' capital demands.
But this also might be what is eating into earnings, Reg
Watson, a portfolio manager on European equities at Standard
Life, said. Watson pointed to the risk that Deutsche may have to
cut its dividend as a way of raising capital. "It's something
you have to accept if you're going to be a Deutsche
shareholder," he said. "You aren't going to get a cosy dividend
and you're always going to have concerns."
The bank's revenue fell by 16 percent in the last quarter
and the bank itself has dampened expectations about a pickup in
important areas such as debt trading for some time to come.
Deutsche Bank declined to make any comment for this story.
Fears of a dividend cut or capital raising have put Deutsche
Bank stock under pressure. The shares are up 1.65 percent in the
past twelve months. The broader index for European banks is up
15.7 percent. Deutsche has a forward price/earnings ratio of
10.0 versus 13.6 for rivals, according to StarMine data, and
therefore plenty of room to catch up.
The bank has faced criticism in Germany for making only slow
progress in reforming its accident-prone culture.
German financial regulator Bafin has pointed to serious
organisational deficits at Deutsche and said reform progress is
lacking. Bafin said in letters reported in German media it had
not seen clear action in terms of staffing. People who worked in
problem areas have not only remained at the bank, they have been
promoted, Bafin said, according to magazine Der Spiegel.
"Deutsche Bank is a special case. Those who used to be
responsible for investment banking and therefore also directly
responsible for the damage now sit at the top of the bank. That
isn't necessarily positive," Michael Huenseler, managing
director at investment firm Assenagon, said.
But despite a public clash between Fitschen and Schaeuble
late last year, officials in Berlin say there is little appetite
for an ouster of either CEO, for fear that could weaken the
country's flagship bank further.
"Nobody in Germany would profit from destabilising the bank
now," one senior official, who requested anonymity told Reuters.
But a senior banker with close ties to Berlin acknowledged
what he described as mounting frustration among politicians with
the steady flow of bad news surrounding the bank.
The banker said Fitschen was struggling to build bridges to
Berlin like his predecessor Josef Ackermann and that Jain was
viewed as "missing in action," as far as contacts with German
politicians were concerned.