Deutsche Bank Reports First Full-Year Loss Since Crisis

FRANKFURT— Deutsche Bank AG’s investment bank, typically its biggest profit engine, lost momentum and market share in key businesses in the fourth quarter, the bank said Thursday, capping a painful year at the start of a multiyear turnaround effort.

Executives at Germany’s largest bank acknowledged that employee morale has taken a beating along with financial performance. Deutsche Bank’s shares continued their slide Thursday, falling 5.4% after the company detailed quarterly and full-year losses it had already announced last week.

The bank’s shares have declined 28% this year. That is worse than most peers, including other European investment banks that also are grappling with strict new regulations and shedding employees, businesses and risk.

“The share price drives morale. Morale drives motivation,” Deutsche Bank’s new co-chief executive, John Cryan, told reporters at a morning news conference in Frankfurt. With a dividend unlikely until 2017, he said, some shareholders likewise have shown a “lack of patience.”

But Mr. Cryan, who replaced former co-CEO Anshu Jain in July and who will become sole CEO of the German lender later this year, said he is optimistic about the bank’s reorganization. He and Marcus Schenck, the finance chief, said they see no need to raise fresh capital.

Mr. Cryan said the bank is cutting the overall bonus pool “as a matter of justice” given Deutsche Bank’s financial performance and legal troubles—but that year-end payouts will become more performance-based and aimed at retaining the right people.

Asked when Deutsche Bank might again be profitable, Mr. Cryan said, “We stand a good chance this year.”

Deutsche Bank’s supervisory board voted this week not to pay 2015 bonuses to anyone on the 10-member management board, which includes Mr. Cryan, he said.

The bank on Thursday reported a loss for the fourth quarter and 2015, as expected, with weakness in its markets and advisory businesses adding to the burdens of mounting legal and restructuring costs.

Deutsche Bank’s first full-year loss since the financial crisis underscores the difficulties it faces shedding a legacy of below-par financial performance and litigation woes while cutting billions of dollars in costs.

Fourth-quarter revenue totaled €6.6 billion ($7.19 billion), down 15% from the same period a year earlier. For the full year, revenue reached €33.5 billion, up slightly when measured at a constant exchange rate.

The full-year net loss was €6.8 billion, including a fourth-quarter net loss of €2.1 billion.

Expenses spiked from restructuring and severance charges, as well as €1.2 billion in additional litigation charges for the quarter. That amount was primarily related to an anticipated settlement tied to mortgage-backed securities. The bank had projected those charges last week when it pre-announced the losses.

The lender said a drop in client activity and a “challenging trading environment” hurt its securities-trading and investment-banking division. The investment bank suffered a €1.2 billion loss in the fourth quarter. Higher regulatory and litigation costs contributed to that.

The bank’s smaller asset- and wealth-management and global transaction banking divisions both had increased revenue in the fourth quarter. The impact of exchange rates helped both divisions. The asset- and wealth-management division had net inflows.

Deutsche Bank CEO John Cryan overhauled the lender’s top management and split its investment bank into two divisions late last year. PHOTO: EUROPEAN PRESSPHOTO AGENCY

Under Mr. Cryan, Deutsche Bank has sought to assure investors it can maintain its status as a global investment-banking and trading powerhouse, even amid new regulatory constraints that make profits harder to generate.

Mr. Cryan late last year overhauled the bank’s top management, split the investment bank into two divisions, and abolished a committee structure he described as onerous and inefficient.

Deutsche Bank is working to sell retail-banking and other assets, exit some markets and pare back its client roster.

Mr. Cryan told analysts on a call Thursday that “the inevitable distraction” of cost cutting and restructuring is hurting morale and affecting performance in some areas, which he said he expected. Still, the bank is reinvesting in key businesses, and Mr. Cryan said the restructuring is “manageable.”

The investment bank’s stumbles are weighing on investor confidence, investors and analysts said. Solid performances in interest-rate and emerging-markets debt trading were unable to make up for a loss of momentum in other core fixed-income businesses in the fourth quarter.

Moreover, trading revenue declined in both stock trading and equity derivatives. The Wall Street Journal earlier reported that the bank suffered a second straight quarter of weakness in equity derivatives. Executives said Thursday the bank had difficulties balancing risks while also taking advantage of profit opportunities.

Mr. Cryan said the bank already has seen “many more opportunities to make money” this month.

Prime-finance revenue, generated through providing loans, securities and other services to hedge-fund clients, increased.

Mr. Cryan has laid out plans to increase Deutsche Bank’s business in equities trading and related businesses. The setbacks illustrate how difficult regaining market share could be when stronger U.S. banks are pushing harder into the business of trading stocks and related derivatives.

Another core Deutsche Bank business, origination and deal advisory, saw revenue fall 43% in the fourth quarter from the same period in 2014. The bank said clients were less active, and that it lost market share in some areas.

For the year, overall investment-bank revenue of €14.2 billion was up 4%.

Mr. Cryan told analysts that Deutsche Bank has seen “no material impact” in loan losses or otherwise from the global energy-sector downturn. He said the bank has less exposure than most of its peers.

At the same time, caution about energy markets took a toll, Deutsche Bank said. Its fixed-income unit backed off from some structured financing deals in the energy sector in late 2015, contributing to a revenue decline in that multi-billion-dollar business for the bank, executives said.