Deutsche Bank ‘Cleaning Slate’ for $7B Loss

SMITH BRAIN TRUST -- Europe’s biggest investment bank is bracing for a near-$7 billion third-quarter loss, and the fallout is taking shape. Deutsche Bank will sell a credit portfolio estimated at $250 billion. The bank’s board also will recommend "a reduction or possible elimination" of the stock's dividend. This move could deter potential investors or cause current ones to sell the stock.

Moreover, a memo from the bank’s new co-CEO John Cryan indicates Deutsche employees will share in absorbing the loss, signaling that year-end bonuses will be reduced. Cryan, by the way, is the former UBS Group AG finance chief known for cost-cutting at the Swiss bank amid a government-led rescue. Cryan “wants to start off with a clean slate for himself and his shareholders,” says clinical professor of finance David Kass at the University of Maryland’s Robert H. Smith School of Business.

Commenting to Bloomberg and other media outlets, Kass added: “They’re writing down areas that turned out to be riskier or less profitable than originally expected, essentially saying they’re worth less than before, which would certainly help comparisons in future years look better.”

The developments, according to WSJ, signal it’s time for banks to ”fess up” to the failed business model involving pursuit “of a lot of ambitious, empire-building deals in the glory days of the late 1990s and 2000s.”

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