Deutsche Bank Falls as Client Jitters Hit Trading in Quarter

Deutsche Bank AG fell the most in four months after earnings missed analysts’ estimates as clients concerned about the bank’s financial strength stepped back from trading with the firm.

The stock slumped as much as 7.1 percent, the most since September, after revenue from debt trading, its biggest source of income, fell short of estimates and equity trading revenue unexpectedly declined.

Deutsche Bank said clients reduced balances and trading after news broke in September that the U.S. had demanded $14 billion to end a probe into the bank’s sales of mortgage bonds. The lender last month settled the investigation for half that amount. Chief Executive Officer John Cryan, who is shrinking the trading operations and raising capital levels eroded by misconduct costs, said clients have since come back in a “meaningful” way and the bank should be profitable this year.

Deutsche Bank shares pared declines after Cryan said clients who reduced business at that time had since engaged again. Revenue will rise this year and the company had a “strong” January across almost all its businesses, according to a presentation the bank published on its website.

“Our expectation would be that we would be profitable this year,” Cryan said. “We’ve put an awful lot of our difficulties behind us.”

The stock traded 5.4 percent lower as of 11:37 a.m. in Frankfurt. The shares had almost doubled from a record low in September through yesterday, as the bank settled some of its biggest legal matters and the election of Donald Trump as U.S. president prompted speculation that bank regulation will be weakened.

The bank reiterated a plan to raise the ratio to at least 12.5 percent by the end of 2018. Assets weighted by risk will probably rise in the first quarter “to support business growth,” the bank said.

Cryan has said he’s willing to sacrifice some revenue as he improves the firm’s internal controls and reduces debt-trading operations that require increasing amounts of capital.

Deutsche Bank took 1.59 billion euros of litigation charges in the fourth quarter, more than the 1.28 billion euros analysts surveyed by Bloomberg News had expected on average. While 2015 and 2016 were “peak years for litigation,” this year will continue to be “burdened by resolving legacy matters,” Deutsche Bank said in slides on its website.

Last month, Deutsche Bank finalized the settlement with the Justice Department over its handling of mortgage-backed securities before 2008. The bank agreed to pay a $3.1 billion civil penalty and provide $4.1 billion in relief to homeowners.

To help shoulder those costs, the company said last month that it will scrap the bonuses of its top executives for a second straight year and slashedvariable compensation for other senior employees to shore up capital.

Deutsche Bank is also considering raising capital through the sale of a stake in its asset management unit in an initial public offering, according to people familiar with the matter.

“We believe Deutsche Bank is at the cross-roads of capital preservation versus supporting the revenue-generating ability of the franchise,” said Kian Abouhossein, an analyst at JPMorgan Chase & Co. with a neutral recommendation on the stock.

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