Deutsche Bank Blames U.S. Tax Reforms for Its Annual Loss

By Maciej Wilowski, National News Editor

Germany’s largest financial institution, Deutsche Bank reported a negative profit of 500 million Euros in the fiscal year 2017 – a result attributed in large part to a one-time charge related to tax reform in the United States.

The charge itself amounted to a payment of 1.4 billion Euros following the passage of tax legislation in Washington in December. President Trump’s new tax law has aimed at lowering the corporate tax rate in order to convince businesses to repatriate capital and operations back to the United States. However, these regulations have caused many large firms to incur large one-time losses due to tax deferrals. Deutsche Bank is no exception, and Chief Executive Officer John Cryan has stated that the bank would have generated a profit of nearly 900 million Euros if not for the legislation-related charge. That would have been a marked improvement over the dismal financial results reported for 2016 when Deutsche Bank witnessed a net annual loss of 800 million Euros.

British-born Chief Executive, John Cryan has repeatedly spoken about putting Deutsche Bank, one of the largest lending institutions in Europe, “back on the front foot” after several years of disappointing results due to mismanagement in the derivatives sector and other key business areas. Because the majority of Deutsche Bank’s operations are done in Europe, where interest rates remain at a near-zero level compared to the increased rates in the U.S., the bank has been unable to significantly boost lending activity and entice customers to increase their deposits. In the past two years, company executives have worked to downsize portions of the business and reduce the scale of bank operations in certain parts of the globe, such as in America, in order to reduce expenses and maintain efficiency. Shares of Deutsche Bank hit its low point in the autumn of 2016 when the Department of Justice placed large fines on the lender for its alleged involvement in fraudulent lending activity leading up to the financial crisis. Since then, share prices have recovered from $11/share in September 2016 to $20 this past December, before falling once again to $15 in the two months leading up to February.

Despite the reported loss, Deutsche Bank moved ahead to increase annual bonus payments to employees and managers, acknowledging that the profit earned before taking into account the tax charge would have justified such a move. The sum payout, including compensation and salaries, to the lender’s employees worldwide totaled 1 billion Euros for 2017. While large, it is small compared to the 2.4 billion Euros paid out to workers in 2015, before the institution began experiencing critical financial problems. Commenting on the decision, the company’s corporate spokesperson, Joerg Eigendorf, responded, “As we were on track for a net profit in 2017, we decided that we shouldn’t punish our staff for a tax reform that has taken place in the United States.” Meanwhile, Deutsche Bank’s shareholders have become dissatisfied as management’s turnaround efforts have yet to generate favorable financial results. Deutsche Bank underperforms many of its U.S. rivals in returns on interest, lending rates, and employee compensation. Optimistic about 2018, CEO John Cryan has stated that the revenue outlook for this year seems improved compared to 2017, especially as consumers in both Europe and the United States ramp up their spending and borrowing in response to a strengthening global economy.

 

A version of this article appeared in the Tuesday, February 13th print edition.

Contact Maciej at

maciej.wilowski@student.shu.edu

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