The bank attributed the results to "exceptional market conditions" in the quarter, which severely hit credit trading, including its prop desk, equity derivatives and equities proprietary trading. Deutsche's measures to reduce exposures and risk on its balance sheet also contributed to the lacklustre showing.
"We have substantially reduced our exposures in leveraged finance, commercial real estate and other key credit market exposures, and expect no further material negative impact from these areas," said Deutsche Bank's chief executive, Josef Ackermann. "We have scaled back or exited trading strategies most affected by market turbulence. We have significantly reduced trading assets, and thus reduced balance sheet leverage."
The bank reduced its leveraged loan exposure to less than €1 billion at the end of the fourth quarter, from €11.9 billion at the end of September. Additionally, it whittled down its exposure to commercial real estate loans to less than €3 billion at the close of December, down from €8.4 billion in the previous quarter.
Up until the announcement, Deutsche had been thought of as one of a small number of banks that had withstood the worst of the financial crisis, recording gains of €900 million in the first nine months of last year. However, with the crisis ramping up a gear between September and November, most - if not all - major dealers were badly hit. In November, the bank reported €386 million in losses on its equity prop trading book in the third quarter of the year, leading to the resignation of three members of the equity derivatives team - global head Richard Carson, Asian head Nino Kjellman and trader Andrew Kent.
BNP Paribas - another bank that performed well in the first nine months - announced on December 16 that its investment banking division took a €1.6 billion loss in October and November, easily wiping out the €878 million of gains made in the first nine months.
Meanwhile, JP Morgan - which had made a year-to-date profit of $4.9 billion by the end of September - has been preparing investors for the worst ahead in advance of its Q4 results, which will be announced later today.
The week on Risk.net, July 7-13, 2018Receive this by email