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Monday Morning Cup of Coffee: Deutsche Bank posts $1.6B loss

Bank the latest to suffer from mortgage-related litigation

January 20, 2014
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Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.

Although the markets are closed today in observance of Martin Luther King, Jr. day, there’s plenty of buzz around the surprise announcement from Deutsche Bank (DB) Sunday night reporting a fourth-quarter loss of €1.2 billion ($1.6 billion), when analysts were expecting a profit of almost €600 million ($800 million). Revenues were off 16% compared to the fourth quarter last year.

Deutsche Bank wasn’t scheduled to release their earnings until Jan. 29, but the Wall Street Journal reported Friday that the bank might issue a profit warning ahead of that release date, sparking a 3% decline in the stock’s share price Friday afternoon. That prediction turned out to be true, as the bank took the unusual step of releasing earnings on a Sunday night. The fourth-quarter earnings were a replay of 2012, when the bank reported a €2.6 billion loss.

One of the biggest drags on the bank was litigation, costing Deutsche Bank a whopping €528 million ($713 million) in the fourth quarter alone. The Federal Housing Finance Agency (FHFA) fined Deutsche Bank $1.9 million in December, topping off a €725 million ($978 million) fine from the European Union. The bank’s total litigation cost for the year was €2.5B, leaving it with litigation reserves of €2.3B.

U.S. banks facing the same kinds of litigation issues managed to fare better last week, with five out of the big six banks beating their earnings estimates.

Citigroup (C) was the only outlier, disappointing analysts with a 21% jump to 82 cents a share, when they had predicted 95 cents a share. JPMorgan Chase (JPM) was able to post a $5.3 billion profit in the fourth quarter despite a $13 billion settlement over legacy mortgage issues in November.

Earnings season continues this week with Regions Financial Corp. (RF), Flagstar Bancorp (FBC), Fifth Third Bancorp (FITB) and Old Republic International Corp. (ORI), among the many firms reporting their financials.

Things are heating up this week in Las Vegas, where all eyes will be on the inaugural ABS Vegas conference running Tuesday through Friday, put on by The Structured Finance Industry Group (SFIG) and Information Management Network (IMN). The conference is seen as a frontal assault on the American Securitization Forum conference being held in the same place a few days later. Our own Trey Garrison will be reporting from Vegas, updating us on the latest in the securitization industry.

Friday marked the first time in 2014 that The Federal Insurance Deposit Corp. (FDIC) closed a bank. DuPage National Bank in West Chicago, Illinois, had approximately $61.7 million in total assets and $59.6 million in total deposits. Republic Bank of Chicago has agreed to assume all deposits.

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