When will Deutsche Bank, Barclays and TSB get off the zombie bank path?

by Shaun Richards

It is time to take a look at an old friend except it is more along the lines of hello darkness my old friend from Paul Simon. This is because my old employer Deutsche Bank has had a very troubled credit crunch era. In spite of better economic times in Germany and indeed much of the Euro area it never seems to quite shake off its past problems or the rumours of something of a supermassive black hole in its derivatives book. This has not been helped by this morning’s figures. From CNBC.

Deutsche Bank posted first-quarter net profits of 120 million euros($146 million) Thursday, a 79 percent fall from last year’s figure.

The first impression is that this is not much for Germany’s biggest bank especially as 2017 and the early part of 2018 was supposed to be the Euroboom. Also there is this to be taken into account.

he net profit number was significantly lower than a Reuters poll prediction of 376 million euros. The Frankfurt-based lender has been under scrutiny from shareholders for posting three consecutive years of losses, including a 497 million euro loss for 2017.

Thus we see that Deutsche Bank has been a serial offender on this front and if we look back no doubt it was knocked back by the Euro area crisis but times improved and of course there have been so many bank friendly policies pursued by the European Central Bank. For example most bond holdings either sovereign or corporate will have been boosted by all the QE bond buying that has and indeed still is taking place. Then there have been all the liquidity support programmes ( LTROs) which may have fallen off the media radar but there are still 741 billion Euros of them expiring in 2020 and 21. Of course this leads to a situation I pointed out yesterday which is a very bank (asset) friendly consequence.

House prices, as measured by the House Price Index, rose by 4.2% in the euro area and by 4.5% in the EU in the
fourth quarter of 2017 compared with the same quarter of the previous year……….Compared with the third quarter of 2017, house prices rose by 0.9% in the euro area and by 0.7% in the EU in the fourth quarter of 2017.

Germany saw a 3.7% year on year rise.

Also according to ECB research bank profitability is not impacted by negative interest-rates.

It finds that both profitability and cost efficiency have continued to improve on the back of rising bank
operating incomes in Sweden and falling operating expenses in Denmark, even when faced with negative monetary policy rates and the banks’ reluctance to
introduce negative deposit rates.

In fact it even confessed to the QE subsidy albeit by referring to somewhere else.

In particular, “realised and unrealised gains” on
securities have helped improve the profitability of Swedish banks. Other contributory
factors probably include the economic recovery and the government bond purchase
programmes pursued by the Riksbank.

What next?

The traditional remedy is to lay-off a few people, often much more than a few people,

Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) has announced strategic adjustments to shift the bank to more stable revenue sources and strengthen its core business lines.

Or to put it another way.

The bank will scale back activities in US Rates sales and trading……..Commitment to sectors in the US and Asia, in which cross-border activity is limited, will be reduced. ….. The bank will be undertaking a review of its Global Equities business with the expectation of reducing its platform.

This is something of a merry-go-round these days where a new boss comes in and announces changes and of course get at least a couple of years for him/herself, more if we add in the usually large pay-off. Those who think that DB requires a complete change of atmosphere direction and philosophy will not be reassured by this bit though.

A Deutsche Bank veteran who started as an apprentice, Sewing

Barclays Bank

In a way the problems at Barclays have been provided with something of a smokescreen by all the troubles at Royal Bank of Scotland. Let’s face it almost anything looks good when compared to it. But there has certainly been a lost decade for shareholders as the just under £7 has been replaced by £2.16 as I type this. Of course many banks saw dives but it the lack of any recovery that is the real problem to my mind. There was the bounce back above £3 in the early days but that now is mired in problems and indeed the courts as the involvement of middle-eastern shareholders gets investigated.

Bringing this up to date as in this morning we see this. From the BBC.

Barclays reported a pre-tax loss of £236m, compared with a profit of £1.68bn for the same time last year.

Okay and why?

“This quarter we… reached an agreement with the US Department of Justice to resolve issues related to the sale of Residential Mortgage-Backed Securities between 2005 and 2007,” said chief executive Jes Staley.

“While the penalty was substantial, this settlement represents a major milestone for Barclays, putting behind us a significant decade-old legacy matter.”

That was for £1.4 billion and I guess it was seen as a good time to throw some more fuel on an ongoing sore.

The bank also put aside an additional £400m to cover an increase in payment protection insurance (PPI) mis-selling claims.

I have lost count of the number of times we have been told that in modern vernacular the PPI scandal is like, so over. The number below relies on you thinking that losses are a legacy issue and profits are for life.

But excluding litigation costs, pre-tax profit rose by 1% to £1.7bn.

Seeing as the facts are pretty much known this seems a case of one rule for you and one rule for me.

Last week, it was revealed that Mr Staley is facing a fine by UK regulators for breaching rules when he tried to identify a whistleblower at the bank.

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) began their probe into Mr Staley’s conduct a year ago.

Lower ranked employees would be sacked for that.

TSB

For those unaware the TSB was the Trustee Savings Bank which has been revived as a way of spinning out some customers from Lloyds Banking Group. The latter ended up being too large via the way the UK government back then persuaded it to take on Halifax Bank of Scotland which effectively torpedoed Lloyds. Anyway there has been a litany of IT issues which began last weekend leading to #tsbdown and #tsbfail proliferating. I can though find one happy customer.

The official view from CEO Paul Pester is this.

Our mobile banking app and online banking are now up and running. Thank you for your patience and for bearing with us.

Yet lot’s of people are still claiming that they do not work. We get told so often that bankers need to be highly paid to get the best people and yet realities like this suggest that the individuals involved are far from the best.

Comment

As we look back we see a banking world that in some areas has recovered but in others has not. The issue of IT ( Information Technology) has been an ongoing sore as I recall replies on here suggesting 1970s style systems still exist because they are afraid what might happen if there are changes. But there is also the issue of share prices where RBS which no doubt is relieved that for once it is not in the news today is nowhere near what the UK taxpayer paid. Barclays I have mentioned. Then there is Deutsche Bank where 12 Euros has replaced the 17 of mid-December and the mid 90s pre credit crunch. Who would have predicted that a decade ago?

Time for the sadly recently departed Delores from the Cranberries to echo out again.

Zombie, zombie, zombie-ie-ie
What’s in your head, in your head?
Zombie, zombie, zombie-ie-ie, oh

Me on Core Finance

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