John Cryan can’t be accused of beating about the bush. When he took the helm at Deutsche Bank in 2015, he gave a merciless rundown of the bank’s weaknesses. He’s lost none of his candour since then, recently admitting that Germany’s largest bank had been limping behind its US rivals for the last three or four years.
That assessment is likely to be confirmed correct by second-quarter figures that will be announced later this month, if analysts’ forecasts are to be believed.
The big US banks such as JP Morgan, Citigroup or Bank of America are expected to post net profits of between $3 and $6 billion, compared with an average forecast of just €407 million, or $467 million, for Deutsche Bank.
“Things weren’t buzzing in this quarter,” the deputy chief executive of the bank, Marcus Schenck, admitted on Monday in Munich. He said business had been “mixed” in the period, especially in the capital markets.
European banks come top, by sad contrast, among banks that made the highest losses last year.
A year ago, the bank only achieved a minuscule profit of €20 million in the second quarter. In the first quarter of 2017, traditionally the strongest three months in the banking year, Deutsche Bank earned a net profit of €575 million. Analysts expect a net profit of €1.4 billion for the year as a whole.
Mr. Cryan may draw some consolation from being in the same boat as many other European banks that are still restructuring and have fallen well behind the US financial sector which has long since recovered from the financial crisis of 2008-09.
The European Central Bank estimates that Europe’s banks still have almost €1 trillion in bad debt on their books. That’s curtailing their ability to lend and is dampening economic growth in the EU, the central bank said. Banks in Greece, Cyprus, Portugal and Italy are particularly hard hit.
A few weeks ago, Spain’s Banco Popular had to be saved through an emergency acquisition by its rival Santander, and Italy caused controversy in June with the winding-down of two banks from the Veneto region. EU finance ministers now plan to tackle the bad debt problem by giving supervisors more powers and creating a network of national bad banks.
“It’s high time we finally removed the sins of the past,” said the head of one major European bank. If Europe wasn’t careful, its banks would at some point be left trailing not just their US rivals but Chinese banks as well, he said.
The new pecking order in the world of finance is already evident in the closely watched ranking of the 1,000 biggest banks by industry magazine “The Banker.” It’s led by the two Chinese banks ICBC and China Construction Bank and has four US banks in the top 10: JP Morgan, Citigroup, Bank of America and Wells Fargo.
Britain’s HSBC is the only European bank in the top 10 and earns the lion’s share of its profits in emerging markets. Deutsche Bank is well down in 21st place.
European banks come top, by sad contrast, among banks that made the highest losses last year. In fact, the top 10 in that particular ranking is populated entirely by Europeans, led by Italy’s Unicredit with a loss of almost €12 billion, followed by Spain’s Banco Popular and Britain’s Royal Bank of Scotland.
Nevertheless, investors don’t expect the financial crisis to flare up again. Risk premiums in the market for credit default swaps, which allow investors to hedge against banks going bust, are lower than at any time since 2012.
US banks sailed passed their stress tests with flying colors in June, securing clearance from regulators for their planned dividends and share buyback programs. Even in a severe crisis, they would have enough capital reserves to ensure their survival, the test results showed.
That’s good news for the banks and their investors alike. Analysts estimate that the six biggest US players — Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, JP Morgan Chase and Wells Fargo – can give their shareholders back a combined total of $100 billion in the coming four quarters, around 50 percent more than after the tests last year.
Michael Maisch is the deputy chief of Handelsblatt’s finance desk and based in Frankfurt, Germany’s financial capital. firstname.lastname@example.org.