Deutsche Bank shares bounce back as new chief cleans stable

Investors and analysts praised Deutsche Bank’s decision to take a €6bn loss in the third quarter as its new chief John Cryan writes down the value of bad investments made in previous years.

Deutsche Bank’s shares edged up 0.5pc after an initial dip as investors welcomed the move to clean the bank up.

The German lender has set aside €1.2bn for litigation costs and an impairment of €600m on the value of its 20pc stake in Chinese lender Hua Xia Bank.

Deutsche is also revaluing the Bankers Trust business it bought in 1998, indicating a long-term problem with the unit.

The bank is expected to suspend or cancel dividend payments to shareholders.

In spite of the surprise announcement, the bank’s share price climbed as investors welcomed Mr Cryan's new approach as he seeks to clean up the bank.

Analysts at UBS said the measures represented “painful steps in the right direction.”

“We think the goodwill impairment charges are paving the way for streamlining the bank's business portfolio,” said Daniele Brupbacher.

Combined with the move to suspend the divided, he said the measures “are a rational step towards preserving capital in order to avoid a dilutive capital raise”.

Mr Cryan took the job in July, taking over from former co-chief executive Anshu Jain. Fellow co-chief Juergen Fitschen remains in place but will step down in 2016.

Meanwhile Barclays analyst Jeremy Sigee noted that Deutsche Bank’s underlying earning numbers appeared relatively healthy with an implied profit of €1.6bn if the one-off factors are stripped out – beating expectations of €0.5bn underlying pre-tax profit.

However, he worried that Deutsche may still need to raise capital in future as the bank has not ruled out such a move.

"The question remains how much of that gap can new management reduce by balance sheet shrinkage, disposals and/or better earnings retention, or whether they feel a need to raise externally," said Mr Sigee.

Deutsche is set to reveal more of Mr Cryan's strategy in its third-quarter financial results statements on October 29.

Meanwhile fellow European investment bank Credit Suisse is reported to be in the latter stages of planning for a capital raising round, as its new chief executive Tidjane Thiam also takes long-awaited action to improve the lender’s performance. Such a fundraising round could come in at above €5bn.

Credit Suisse’s shares dropped 4pc on the news.