* Shares fall 6 percent
* Fixed-income trading revenue drops 31 pct in quarter
* No decision made yet on 2013 dividend
(Adds CEO, CFO comment, fund manager comment)
By Thomas Atkins
FRANKFURT, Jan 20 Deutsche Bank is to
rein in global trading ambitions to put more emphasis on
profitability than size at its core bond trading business where
a sharp drop in revenues contributed to a big fourth quarter
The 1.15 billion euro ($1.56 billion) loss compounds
problems that have dogged Germany's biggest bank over the past
year, including a list of lawsuits and regulatory wrangles and
the need to shore up its balance sheet.
Co-Chief Executive Anshu Jain stuck by the bank's promise to
meet its 2015 targets while predicting a tough 2014.
"We are forecasting that 2014 will represent the turning
point where the bulk of our legacy losses, litigation and
derisking costs ... will be behind us," he told analysts in a
conference call on Monday.
Jain said Deutsche's debt downturn was structural and
required shifting activities away from Europe and toward the
more vibrant U.S., and away from size and towards profitability.
"This is a change," Jain said. "We could afford to carry
those businesses in the past, we no longer can."
Deutsche's shares fell six percent in response to the
unexpected loss. This compared with a decline of 0.8 percent in
an index of its peers. The bank, which published the
results on Sunday, had originally been set to report on Jan. 29.
Revenue at Deutsche's debt-trading business, which accounts
for nearly three quarters of its trading revenue, fell by almost
a third, much more than at U.S. rivals which also suffered from
a bond trading slowdown ahead of a cut in the Federal Reserve's
bond buying to help the U.S. economy.
At Goldman Sachs and Citi, for example, revenue
from bond trading fell 11 percent and 15 percent respectively in
the fourth quarter.
Deutsche, one of Europe's major bond trading houses, has
been able to vacuum up business from rival banks that are
scaling back. But tougher regulatory demands after the financial
crisis have forced it to shed assets itself.
"It's clear that Deutsche are stepping away from areas of
business which aren't profitable on an ROE (return on equity)
basis," Reg Watson, a portfolio manager in European equities at
Standard Life, said. "And this does mark a change and it's a
change that management are keen to emphasise - that they're no
longer running the business just for revenue, they're running it
Shailesh Raikundlia, a London-based analyst at Espirito
Santo, said Deutsche was losing market share. "They're losing
ground to the likes of Barclays because they don't have the
capital (to support a big investment bank)."
Barclays is the other European bank heavily reliant on debt
market trading income. Its shares fell 2.0 percent on Monday.
Litigation cost it 528 million euros in the quarter,
bringing the year's bill for fines and settlements to 2.5
billion euros and lowering litigation reserves to 2.3 billion
euros at year-end.
Deutsche was fined $1.9 billion in December by the U.S.
Federal Housing Finance Agency and was also fined 725 million
euros by European Union antitrust regulators for rigging
benchmark interest rates.
Deutsche said no decision had been made yet on its 2013
dividend. It would need to devote some 70 percent of net profit
to dividends to keep the payout unchanged at 75 cents a share.
On the positive side, the bank's restructuring plan edged
ahead of targets and capital ratios met industry expectations,
even after the higher losses, thanks to a greater than expected
reduction in assets.
Analysts had been positive about Deutsche before the bank's
results, with 23 of the 36 covering the stock rating it a
"strong buy" or "buy," according to Thomson Reuters data.
Analysts at JPMorgan remained positive, saying management
deserved credit for cutting balance sheet exposure and settling
some outstanding litigation.
"Management has delivered on our wish-list of aggressive
exposure reduction, bringing forward of cost savings and
settlement of some litigation," JPMorgan said.
Citi analyst Kinner Lakhani said even though Deutsche's
story was two steps forward, one step back, the shares still
offered significant upside potential for patient investors.
Before Monday, Deutsche Bank shares had rallied 13 percent
so far in 2014, in line with European banking rivals.
Deutsche has an estimated forward price/book ratio of 0.7
compared to 0.9 on average for rivals and a forward
price/earnings ratio of 10.0 versus 13.6 for rivals, according
to StarMine data.
The bank posted full-year pre-tax profit of 2.1 billion
euros, half of the 4.21 billion euros expected by analysts,
according to data from Thomson Reuters I/B/E/S.
($1 = 0.7376 euros)
(Reporting by Thomas Atkins; additional reporting by Laura
Noonan, Steve Slater and Jemima Kelly in London and Jonathan
Gould in Frankfurt; editing by Tom Pfeiffer and Jane Merriman)