Deutsche Bank, under pressure from an impending settlement with the U.S. Justice Department, reported 278 million euros ($303 million) in net profit for the third quarter as it strengthened its financial buffers against loss. The profit contrasted with a loss of 6 billion euros a year ago, when the bank had large one-time charges. Profit exceeded analyst estimates and the meager 20-million-euro profit from the second quarter.
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The bank is in the midst of a wrenching restructuring, shedding jobs and withdrawing from some countries. Profits have been hit by high costs for legal settlements, by extremely low interest rates that erode bank profits, and by regulatory demands to set aside more money as a cushion against losses.
CEO John Cryan said on a conference call with analysts Thursday that “the results for the quarter show the resilience of our operating business in a tough environment and show the progress we are making toward restructuring the bank.”
Cryan said the quarter’s results had been overshadowed by the Justice Department settlement talks. He said settling the issue was his top priority but added that the timing was not entirely in the bank’s control. The bank gave no update on the matter Thursday.
The bank’s shares have suffered after a report the Justice Department made an initial demand of $14 billion to settle claims related to the bank’s dealings in mortgage-backed bonds in the 2000s. Fears that a large settlement could push the bank to raise more capital from investors have weighed on the stock; issuing new shares would dilute existing holdings and is regarded as negative for the share price. The bank has said a capital increase is not on the agenda.
Securities based on mortgages to people with shaky credit led to large losses by investors, who may not have understood all the risks involved in the securities.
During the third quarter, the bank strengthened its common equity tier 1 capital ratio, a measure of financial resilience, to 11.1 percent from 10.8 percent in the quarter before, still below the year-ago figure of 11.5 percent. The ratio measures capital held against risky investments that could result in losses.
Cryan said the bank was “confidently on track” to wind up its non-core assets units by the end of the year. That unit is where it is selling off or running down riskier investments that are not considered part of the bank’s basic business. Winding down the investments set aside in the unit has meant a steady burden on profits, including a loss of 538 million euros in the third quarter.