Deutsche Bank has warned it will lose more than €6bn (£4.4bn) in the third quarter, a record loss.
In a late night announcement that shocked analysts, Germany’s biggest bank blamed huge impairment charges of €5.8bn for the unexpected losses. Forecasts had been for profits of around €1bn.
The charges are related to higher capital requirements for Deutsche’s investment bank and the reduced value of its Postbank retail banking division, which is up for sale.
Deutsche also took a €600m writedown on the value of its 20% stake in China’s Hua Xia Bank, which it wants to offload. It bought the stake in 2005 and it is now worth about $3.5bn.
On top of this, the bank is setting aside €1.2bn to cover litigation costs. Like other banks, Deutsche has been caught up in the Libor-rigging scandal, and faces another investigation in Switzerland for suspected price-fixing in the precious metal market.
The charges will push Deutsche into an estimated net loss of €6.2bn between July and September. On a pretax basis the company expects to lose €6bn but excluding the impairment charges, the loss would be €200m.
The Frankfurt-based lender said it may cut or scrap its dividend payments to shareholders this year.
However, UBS analysts Daniele Brupbacher and Mate Nemes said the clean-up – undertaken by new boss John Cryan – was partially hiding good results. While painful, “the goodwill impairment charges are paving the way for streamlining the bank’s business portfolio and part of strategy 2020,” they said.
Stripping out the goodwill impairment, Hu Xia impact and litigation provisions, the pretax profit would be €1.6bn, 11% higher than the analysts’ consensus and 17% above the UBS estimate.
Deutsche shares initially fell 3% but are now trading 1.4% higher.
Cryan, who became co-chief executive in July, is planning to reduce the workforce by a quarter, or 23,000 jobs, to bring costs down and avoid a fundraising from shareholders. The Postbank sale will reduce Deutsche’s workforce by 15,000, and the lender is reportedly considering cutting 8,000 additional jobs.
Bankers’ bonuses could also be cut. In a memo, Cryan told staff on Wednesday night that they would have to shoulder some of the burden. He wrote: “While compensation considerations are not based on this year’s financial results alone, our shareholders will rightly expect employees to share something of the burden.”
Cryan will set out the details of his strategic review when the bank releases its third-quarter results on 29 October.