Business context and reporting period
Deutsche Bank AG’s Form 20-F, filed March 12, 2021, reports the fiscal year ended December 31, 2020; it is an annual report, not a standalone fourth-quarter filing. The consolidated statements were prepared under IFRS as issued by the IASB and audited by Ernst & Young, which gave an unqualified opinion. The filing notes that its IFRS basis differs from the EU-endorsed IFRS version used in the bank’s non-SEC reporting; the EU carve-out increased 2020 revenue and pretax profit by €18 million and after-tax profit and equity by €12 million.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenues, before credit-loss provisions | €24.0 billion | €23.2 billion |
| Net interest income | €11.5 billion | €13.7 billion |
| Provision for credit losses | €1.8 billion; 41 bps of average loans | €723 million; 17 bps |
| Noninterest expenses | €21.2 billion | €25.1 billion |
| Profit (loss) before tax | €1.0 billion | Loss of €2.6 billion |
| Net income (loss) | €612 million | Loss of €5.3 billion |
| Profit attributable to Deutsche Bank shareholders after AT1 coupons | €101 million | Loss of €5.7 billion |
| Operating cash flow | €30.7 billion | Loss of €40.4 billion |
| Net interest margin | 1.25% | 1.44% |
| Cost/income ratio | 88.4% | 108.2% |
Cash flow from investing activities was negative €1.9 billion and financing activities were negative €0.3 billion; cash and cash equivalents increased by €27.5 billion. These cash-flow figures should not be confused with the balance-sheet cash and central-bank balance figure.
At year-end, total assets were €1.325 trillion; loans at amortized cost were €426.7 billion and deposits €567.7 billion. Total equity was €62.2 billion, including €54.8 billion attributable to shareholders. Long-term debt was €149.2 billion; total debt including trust preferred securities and long-term debt designated at fair value was €153.9 billion. The filing reports €62.4 billion, or 41%, of debt as secured and €734 million, or 0.5%, as government-guaranteed.
Common Equity Tier 1 capital was €44.7 billion and the CET1 ratio was 13.6%, unchanged year over year. The total regulatory capital ratio was 17.8%. The fully loaded leverage ratio was 4.7%, benefiting from a temporary regulatory exclusion of certain central-bank exposures; without that adjustment it was 4.3%. Liquidity reserves were €243 billion, the year-end Liquidity Coverage Ratio was 145%, and its surplus over regulatory requirements was €66 billion.
Material changes versus 2019
- Revenue rose about 4%, principally as Investment Bank revenue increased 32% to €9.3 billion amid strong market activity and client flows. Corporate Bank revenue fell 2% to €5.1 billion, Private Bank revenue fell 1% to €8.1 billion, and Asset Management revenue fell 4% to €2.2 billion.
- Net interest income declined 16%, mainly from lower interest rates and foreign-exchange effects. This reduced the net interest margin by 19 basis points to 1.25%.
- Credit-loss provisions increased 148%, to €1.8 billion, reflecting COVID-19 impacts and higher expected credit losses. Stage 3 allowance coverage was 34%, down from 40%.
- Noninterest expenses fell 15%. The prior year included €1.0 billion of goodwill impairment and higher transformation, litigation, restructuring and severance expenses. The 2020 net profit also benefited from deferred-tax-asset valuation adjustments falling to €37 million from €2.8 billion in 2019.
- Capital Release Unit risk-weighted assets declined by €11 billion year over year to €34 billion; its leverage exposure fell by €55 billion to €72 billion.
Outlook, risks and unusual items
Management retained 2022 targets of 8% Group post-tax return on average tangible equity, more than 9% for the Core Bank, adjusted costs excluding transformation charges of €16.7 billion, a 70% cost/income ratio, CET1 above 12.5%, and a fully loaded leverage ratio of approximately 4.5%. The bank expects COVID-related effects on credit-loss provisions to continue in 2021 and forecasts 2022 provisions of 25–30 basis points of average loans as the economy recovers. These are targets and expectations, not guarantees.
Management highlighted the pandemic, persistent low interest rates, market volatility, credit deterioration, litigation, regulatory requirements, Brexit-related operational and authorization issues, cyber and technology risks, and execution of the bank’s transformation. It also cited control and compliance remediation: BaFin had ordered improvements to anti-money-laundering and know-your-client processes and appointed a special representative to monitor progress. Separately, management and the auditor concluded that internal control over financial reporting was effective at year-end 2020.
The Management Board proposed no dividend for 2020; no dividend was paid for 2019. Management stated an intention to free capital for distributions from 2022, with a longer-term goal of returning €5 billion, subject to profitability and regulatory constraints. The bank also set a target of more than €200 billion in sustainable financing and ESG investment by 2025 and committed to sourcing 100% renewable electricity for its own operations by 2025.
Notable legal matters include ongoing cum-ex investigations and claims, including a Warburg claim dismissed at first instance but appealed, and Postbank takeover litigation with nearly €700 million of claims (excluding interest) still described in the filing. In January 2021, Deutsche Bank entered a U.S. Department of Justice deferred prosecution agreement concerning historical finder/consultant engagements and precious-metals spoofing, with agreed payments of approximately US$80 million and US$8 million respectively; it also agreed to a US$43 million SEC settlement concerning finder/consultant conduct. The bank paid a €13.5 million German administrative fine in Q4 2020 for late suspicious-activity reports and a US$150 million New York DFS penalty in Q3 2020 concerning former client relationships. The filing states that legal outcomes and exposures can be difficult to estimate.
Important facts for investors to verify
- Review the full audited statements and notes, especially credit-loss assumptions, COVID-related overlays, Stage 3 exposures and the €740 million prudential deduction for non-performing exposures.
- Confirm the leverage ratio both with and without the temporary central-bank exposure exclusion, and monitor the bank’s capital and liquidity against evolving requirements.
- Track whether revenue growth, cost reductions and the 2022 profitability targets are achieved as market activity normalizes and low-rate pressure persists.
- Follow developments in Postbank and cum-ex litigation, AML/KYC remediation, the DOJ agreement and other regulatory investigations; compare outcomes with recorded provisions.
- Assess the proposed dividend and future capital distributions against German distributable reserves, regulatory restrictions and actual profitability.