Deutsche Bank, Europe's biggest bank by assets, posted a fourth-quarter loss eight times larger than expected, after the company eliminated more than 1,400 jobs and set aside €1 billion (HK$10.5 billion) for legal expenses.
The loss of €2.17 billion, the biggest in four years, was about eight times larger than the consensus analyst forecast and a turnaround from a profit of €147 million for the same period in 2011.
The bank's co-chief executives, Juergen Fitschen and Anshu Jain, are restructuring operations and bolstering capital levels, the lowest among Europe's biggest investment banks, in their first year in charge, to help meet stricter banking rules.
Costs associated with job cuts and litigation countered an increase in trading revenue, spurred by the European Central Bank's steps to stem the sovereign debt crisis.
The loss "reflects a number of decisions we took to position Deutsche Bank," Jain said in the earnings statement. "We've galvanised Deutsche Bank around the achievement of our capital targets."
Deutsche Bank shares were little changed at €37.15 in early Frankfurt trading.
The bank's shares have lagged behind rivals, rising 15 per cent over the past year, against an increase of 23 per cent for the benchmark Stoxx 600 Banks Index.
Non-interest expenses climbed to €10 billion from €6.7 billion in the fourth quarter of 2011. Deutsche Bank also said it had a €1.9 billion impairment of goodwill and other intangible assets.
The investment bank had a pre-tax loss of €548 million in the fourth quarter, the company said.
Analysts had expected a profit of €359 million.
Amit Goel, an analyst at Credit Suisse, who has an "underperform" rating on the bank's stock, said "various exceptional items arising from restructuring costs and impairment charges" hurt fourth-quarter earnings at the bank.
Deutsche Bank had eliminated 1,400 of 1,500 positions slated to be cut at the investment bank and related support areas by the end of last month, said its chief financial officer, Stefan Krause.
The bank formed a subsidiary last year to wind down and sell €125 billion of assets including loans, securitised products and a Las Vegas casino, to release capital.
Deutsche Bank said its core tier-1 capital ratio, a measure of financial strength, stood at 8 per cent on December 31 under Basel III rules.
That exceeded the bank's forecast for a reading of 7.2 per cent. Jain said he expected a ratio of 8.5 per cent at the end of the first quarter.
Jain and Fitschen pledged in September last year that they would increase the capital ratio to more than 10 per cent by the end of 2015.
The bank's biggest competitors will reach similar levels months or years sooner, according to their forecasts.
While the improving economic environment might temper concern over Deutsche Bank's capital position, the risks of costs arising from litigation and stricter bank regulation were still going to weigh on investor sentiment, Goel said.
"Investors will continue asking whether the bank's capital cushion is too thin to avoid a capital increase, should conditions deteriorate," he said.