Business context and reporting period
Deutsche Bank Aktiengesellschaft filed this Form 20-F on March 20, 2020, reporting on the fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing. The consolidated statements are audited and prepared under IFRS as issued by the IASB. The bank reported across Corporate Bank, Investment Bank, Private Bank, Asset Management, Capital Release Unit (CRU), and Corporate & Other.
Key financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total net revenues, before credit-loss provisions | €23.2bn | €25.3bn |
| Net interest income | €13.7bn | €13.2bn |
| Provision for credit losses | €723m | €525m |
| Noninterest expenses | €25.1bn | €23.5bn |
| Profit (loss) before tax | (€2.6bn) | €1.3bn |
| Net income (loss) | (€5.3bn) | €341m |
| Net income (loss) attributable to Deutsche Bank shareholders | (€5.7bn) | (€52m) |
| Operating cash flow | (€40.4bn) | (€54.2bn) |
| Total assets | €1,297.7bn | €1,348.1bn |
| Loans at amortized cost | €429.8bn | €400.3bn |
| Deposits | €572.2bn | €564.4bn |
| Long-term debt | €136.5bn | €152.1bn |
| CET1 capital ratio | 13.6% | 13.6% |
| Fully loaded leverage ratio | 4.2% | 4.1% |
| Liquidity coverage ratio | 141% | 140% |
| Liquidity reserves | €222bn | €259bn |
The filing also reports IFRS net revenues after provision for credit losses of €22.4bn in 2019, versus €24.8bn in 2018. “Total net revenues” above is before that provision. Cost/income ratio rose to 108.2% from 92.7%; post-tax return on average tangible equity was (10.9)%.
Material changes versus the prior year
- Revenue declined 8% as discontinued businesses, negative fair-value impacts and CRU de-risking costs weighed on results. Net interest income increased 4%, but commissions and fee income fell 5% and gains on financial assets/liabilities at fair value through profit or loss fell 85%.
- Credit-loss provisions rose 38% from a low 2018 base, though remained 17 basis points of loans.
- Expenses increased 7%, including €1.1bn of transformation charges, €1.0bn of goodwill impairments and €805m of restructuring and severance expenses. Adjusted costs excluding transformation charges were €21.6bn, down 5%.
- The net loss included €2.8bn of deferred-tax-asset valuation adjustments, primarily relating to the U.S. and UK. Goodwill impairments included €545m in Wealth Management and €492m in the Corporate Bank.
- Risk-weighted assets fell €26.4bn to €324.0bn, while CET1 capital fell €3.3bn to €44.1bn; the CET1 ratio remained 13.6%. CRU leverage exposure declined to €127bn from €281bn.
- Employees decreased to 87,597 from 91,737. The loan-to-deposit ratio increased to 75.8% from 71.7%, while liquidity reserves declined €37bn.
Guidance, management commentary, risks and unusual items
Management described 2019 results as in line with or ahead of near-term objectives for costs, capital and leverage, and said Core Bank revenues excluding specific items were stable. Core Bank reported pre-tax profit of €543m; management presented adjusted pre-tax profit of €2.8bn, up 7% on a comparable basis. These adjusted measures are non-GAAP.
Targets include adjusted costs of €19.5bn for 2020, a CET1 ratio of at least 12.5%, and a fully loaded leverage ratio of 4.5% excluding specified Prime Finance balances. For 2022, targets are adjusted costs of €17bn, CET1 of at least 12.5%, fully loaded leverage of approximately 5%, Group post-tax return on average tangible equity of 8%, Core Bank return above 9%, and a 70% cost/income ratio. Management cautioned that COVID-19 could impair its ability to meet these targets. The filing’s macroeconomic outlook expected global growth to slow materially in the first half of 2020; that outlook was prepared amid substantial uncertainty.
The July 2019 transformation refocused the bank on four core businesses and created the CRU to reduce non-core assets. The Global Prime Finance and Electronic Equities client migration to BNP Paribas was expected to occur by the end of 2021. Other major risks include low or negative interest rates, market and credit volatility, Brexit-related disruption, regulatory capital and liquidity requirements, litigation, and weaknesses in AML/KYC controls and fragmented IT and control infrastructure. BaFin’s AML/KYC remediation order remained under monitoring by a special representative.
The Management Board proposed no 2019 dividend, stating that no distributable profit was available. The bank repurchased 23.3m shares in 2019 for group purposes. Total provisions were €2.3bn at year-end; litigation and regulatory matters remain uncertain. Notable exposures include Postbank takeover claims totaling almost €700m (excluding interest), a Warburg cum-ex claim of approximately €198m, and a German pension-plan tax dispute involving €616m of tax and interest already paid and under litigation. The filing states that adverse outcomes could materially affect results, capital or reputation.
KPMG issued an unqualified opinion on the consolidated financial statements and an unqualified opinion on internal control over financial reporting as of year-end. The report also notes that the 2018 adoption of IFRS 9 changed accounting for financial instruments, limiting some comparisons with 2017.
Most important facts an investor should verify
- Reconcile reported IFRS losses with management’s adjusted results and examine the assumptions behind the €2.8bn deferred-tax-asset valuation adjustments and goodwill impairments.
- Track execution of the cost, return, CET1 and leverage targets, including the costs and timing of the transformation and CRU wind-down.
- Review liquidity reserves, funding composition, capital buffers and the effect of market stress or rating downgrades; distinguish regulatory minimums from management targets.
- Monitor COVID-19 impacts on credit losses, fair values, client activity and target achievability; the filing does not provide a quantified COVID-19 impact on 2019 results.
- Assess the status, provisions and possible outcomes of Postbank, cum-ex, benchmark-rate and other litigation, and progress on AML/KYC and control remediation.
- Confirm the proposed zero dividend against Deutsche Bank AG’s unconsolidated distributable profit and applicable regulatory restrictions.