Deutsche Bank raid casts shadow over record profit year

Deutsche Bank AG closed a record profit year thanks to higher trading revenues and a new share buyback program — a positive signal for CEO Christian Sewing, a day after the bank’s Frankfurt offices were raided.

Revenues from the bank’s bond and currency trading unit rose 6% year-on-year, marking the strongest fourth quarter in the bank’s history, Deutsche Bank said in a statement on Thursday. Germany’s largest bank also announced a new share buyback of €1 billion, which together with a dividend of €1 per share will bring total distributions to shareholders to 50% of last year’s profits.

Chief Financial Officer James von Moltke told Bloomberg TV that the bank is experiencing a “really strong start” to the year and plans additional distributions in the second half.

However, the results were overshadowed by a surprise raid at Deutsche Bank’s headquarters on Wednesday, adding a new legal challenge for Sewing, who earlier in his tenure managed costly legacy cases. Since then, higher interest rates and a rebound in trading have helped the bank turn around. In November, Sewing raised a key return target and committed to paying 60% of profits to shareholders.

“We know where we want to go, and we will not deviate from this path,” Sewing said in a message to employees. “The presence of prosecutors in our Frankfurt offices yesterday in no way changes that.”

The raid at Deutsche Bank’s offices is part of a money-laundering investigation linked to past transactions by employees with companies associated with the now-sanctioned Roman Abramovich, according to sources. The allegations relate to transactions during 2013–2018, and the bank stated that it is “fully cooperating.”

Other legal challenges for Sewing include a lawsuit filed by a group of former managers claiming they were wrongfully accused in an accounting scandal at Banca Monte dei Paschi di Siena SpA.

For the current year, Deutsche Bank expects revenues to rise to around €33 billion, supported by lending and fees. Investment banking revenues are expected to be slightly higher than last year, driven by advisory activity and capital markets, while trading revenues are expected to remain largely unchanged. Non-interest expenses are expected to rise to just over €21 billion, in line with November guidance.

In the fourth quarter, Deutsche Bank’s bond traders outperformed competitors despite a significant euro appreciation, which limited profit growth compared with dollar-denominated banks. The largest Wall Street banks reported an average increase of 4% in bond trading.

“Macro products, particularly currencies and emerging markets, were exceptionally strong,” von Moltke said. For the first quarter, however, the bank expects trading to be roughly at last year’s levels.

Strong trading results in the fourth quarter were partially offset by a 4% decline in advisory and issuance activity — an area Sewing has been developing in recent years in anticipation of a recovery. Most U.S. competitors were more optimistic about this business in their fourth-quarter earnings presentations.

Later on Wednesday, the bank’s asset management arm, DWS Group, raised its medium-term profit target and announced it would pay a special dividend after successfully controlling costs and refraining from major acquisitions.