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Deutsche Bank has abandoned plans for further share buybacks this year after incurring more than 1 billion euros in legal costs related to its failed takeover of German retail lender Postbank.
Shares in Germany’s largest bank fell as much as 8% on Wednesday after Chief Financial Officer James von Moltke said the bank would focus on “building surplus capital” for the rest of the year.
Deutsche Bank took a 1.55 billion euro legal charge in the second quarter, 1.3 billion of which was for litigation over its acquisition of Postbank. The charges helped the bank post a net loss of 143 million euros in the three months to the end of June, its first quarterly loss in nearly four years.
Chief Executive Christian Sewing sought to reassure shareholders that the company would stick to its promise to pay out a total of 8 billion euros between 2021 and 2025 through a combination of dividends and share buybacks, despite suspending share buybacks for the rest of the year.
In addition to disclosing the legal expenses, Deutsche Bank also increased its provision for credit losses this year, saying it was too optimistic about how quickly the commercial real estate market would recover.
Provisions for credit losses rose by almost a fifth to 476 million euros in the second quarter, higher than the most pessimistic forecasts, and von Moltke said the total could still reach 525 million euros.
While this may be “a little bit worse than we expected,” he argued that the total amount of provisions is still not “dramatic.”
The decision to halt share buybacks this year obscured signs that the bank’s ambitions to ride a global trading recovery were coming to fruition.
Deutsche Bank said on Wednesday that revenue from advising companies on transactions and raising new debt and equity rose to 585 million euros in the second quarter from 291 million euros a year earlier.
The increase validates the bank’s efforts over the past 18 months to restart its corporate advisory business and reduce its reliance on bond trading.
The investment bank’s pretax profit rose quarterly to 746 million euros, but fell short of analysts’ expectations. The bank’s trading revenue fell 3 percent in the quarter from a year earlier.
Analysts and investors had been expecting improved results from the investment bank after its Wall Street rivals reported their best results in more than two years.
The bank’s common equity Tier 1 ratio, a key measure of its balance sheet strength, stood at 13.5% of risk-weighted assets, up 10 basis points from the first quarter of this year.
