FRANKFURT — Deutsche Bank, Germany’s largest lender, reported a surprise quarterly net loss of $3 billion on Thursday, as new management tallied the cost of past mistakes and tried to draw a line under the bank’s troubled past.
The fourth-quarter loss of 2.2 billion euros included about 1 billion euros the bank set aside to cover legal proceedings and investigations, including accusations that Deutsche Bank was among institutions that rigged global benchmarks used to set rates on trillions in loans. The bank also booked losses in recognition of the diminished value of acquisitions going as far back as its purchase of Bankers Trust in the United States in 1998.
While the loss partly reflected problems peculiar to Deutsche Bank, it was a reminder of the weak state of European banking more than four years after the beginning of the financial crisis. Deutsche Bank is considered relatively healthy by European standards. Hesitant action by national regulators means that many other banks have not yet been forced to recognize the full scope of bad investments and depend on the European Central Bank for cash they need to operate.
The loss at Deutsche Bank contrasts with strong earnings recently by competitors like JPMorgan Chase. Still, its shares rose 2.9 percent in Frankfurt trading as investors apparently concluded that the German bank’s relatively new co-chief executives, Jürgen Fitschen and Anshu Jain, were front-loading the bad news. Investors were also rewarding the bank’s efforts to increase the size of the reserves it holds as insurance against losses.
The two men took over the reins less than seven months ago and have declared their intention to deal more severely with the legacy of the financial crisis. The new approach includes raising the amount of capital the bank keeps in reserve compared with the amount of money it lends to customers or otherwise puts at risk. Deutsche Bank has suffered from the perception that it is among the most highly leveraged banks in Europe.
The bank said on Thursday that it had raised its so-called core Tier 1 capital ratio, a measure of the size of the reserves in relation to the amount of money at risk, to 8 percent from less than 6 percent a year ago. Some analysts questioned whether the bank really had become safer or whether the improved ratio simply reflected changes in the way the bank calculates risk.
For now, though, investors are willing to give Deutsche Bank the benefit of the doubt, analysts said.
“The new management under co-C.E.O. Anshu Jain is starting to deal with D.B.’s legacy issues,” analysts at JPMorgan Cazenove said in a note to clients.
Capital is also an issue for Deutsche Bank in the United States, where the Federal Reserve is proposing that foreign banks hold more capital at their local operating units. Stefan Krause, the bank’s chief financial officer, said in a call with analysts that Deutsche Bank was prepared to allocate more capital to the United States in 2015, adding that the rules “were really not very helpful in terms of helping global financial markets.”
The quarterly results showed the bank was clearing its books of bad assets and reducing risk, its executives said. Late last year Deutsche Bank created a “noncore operations unit” to dispose of bad investments or holdings that did not produce an adequate return.
“We are willing to take pain,” Mr. Jain said at a news conference. “That is the real story of the fourth quarter. We are willing to take losses.”
Deutsche Bank said revenue in the fourth quarter rose 14 percent, to 7.9 billion euros, from the period a year earlier. The bank warned in December that it would incur major charges in the quarter, but most analysts had not expected the loss to be nearly so big. Before taxes, the loss was 2.6 billion euros.
For the full year, Deutsche Bank reported a net profit of 665 million euros after subtracting 3.5 billion euros related to legal problems or diminished value of assets.
The bank’s problems are far from over. Deutsche Bank continues to cope with the consequences of behavior by some employees, including a tax evasion inquiry that led to a raid on company headquarters last month involving hundreds of police officers. Executives acknowledged on Thursday that the bank could face additional lawsuits related to its sale of securities tied to the United States subprime mortgage market.
“Although they have taken some chunky provisions, litigation is an ongoing drag on the industry,” said Jon Peace, a bank analyst with Nomura in London. “There is probably going to be more litigation drag in 2013.”
Deutsche Bank is among institutions accused of helping to manipulate the London interbank offered rate, or Libor, which is used to set rates on trillions of dollars of mortgages and other debt. Mr. Jain said on Thursday that during the World Economic Forum in Davos, Switzerland, last week, he and other bankers discussed whether it would be possible to work out a global settlement with authorities and complainants. While the bankers did not make any decisions, Mr. Jain said, they agreed that a comprehensive settlement might make sense and would discuss it further.
In response to lapses of the past, executive bonuses have been curtailed, and employees have undergone mandatory ethics training which stresses integrity in trading and dealing with clients, Mr. Fitschen said.
“If you cannot commit yourself to those values without reservation,” he said, “Deutsche Bank is not the place for you.”
