Regulatory haze masks performance halo: Deutsche Bank (DB.US) record Q4 profit "money laundering investigation" puts pressure on stock price

Deutsche Bank Aktiengesellschaft (DB.US) has announced its fourth-quarter financial performance. It achieved a record profit in the fourth quarter of 2025, with a net profit attributable to shareholders of 1.3 billion euros (1.56 billion US dollars), higher than analysts' previous forecast of 1.12 billion euros. Overall fourth-quarter revenue was 7.73 billion euros, an increase of 7.1% year-on-year, which was essentially in line with LSEG's estimate of 7.72 billion euros. Earnings per share were 0.76 euros, compared to market expectations of 0.55 euros. Net profit attributable to shareholders for 2025 was 6.12 billion euros (7.3 billion US dollars), driven by the strong performance of its global investment banking business. This is significantly higher than the 2.7 billion euros from a year ago and slightly above analysts' expectations of nearly 6 billion euros. The management plans to propose a dividend of 1 euro per share for the 2025 fiscal year at the annual shareholders' meeting scheduled for May 2026, totaling 1.9 billion euros, representing an increase of approximately 50% from the dividend of 0.68 euros per share for the 2024 fiscal year. The bank stated in a statement on Thursday that revenue from fixed income and foreign exchange trading departments increased by 6% year-on-year, achieving the best fourth-quarter performance ever, exceeding expectations of 4%. The largest bank in Germany also announced another 1 billion euro share buyback plan, along with the 1 euro per share dividend, which would bring the total dividend to 50% of last year's profit. With higher trading revenue, the bank achieved record profit levels, which undoubtedly boosted morale for CEO Christian Sewing. The bank's office in Frankfurt was raided by regulators the day before. Chief Financial Officer James von Moltke stated in an interview that Deutsche Bank had a "very strong start" to the year and plans to increase dividends in the second half of the year. In the fourth quarter, despite a strong Euro leading to lower profit growth for the fixed income traders compared to their US dollar peers, the performance was still excellent. The average revenue for fixed income trading at some of Wall Street's largest banks was 4%. von Moltke said in the interview, "Macroeconomic products, especially foreign exchange and emerging market products, performed particularly well." Nonetheless, Deutsche Bank Aktiengesellschaft expects trading volumes in the first quarter to remain largely flat compared to the same period last year. Although fourth-quarter trading performance exceeded expectations, advisory and lending businesses declined by 4%, partially offsetting this growth. Sewing has been aggressively expanding this business in recent years in anticipation of market recovery. At the fourth-quarter performance conference, most American competitors were optimistic about this business as its revenue saw substantial growth in the last three months of the year. Prosecutors' search action against Deutsche Bank Aktiengesellschaft on suspicion of money laundering this week overshadowed its strong performance. Frankfurt prosecutors stated that they were investigating unidentified individuals and bank employees for alleged failure to report suspicious activities, which occurred between 2013 and 2018. After the performance announcement, as of the time of writing, Deutsche Bank's stock price fell nearly 3% in pre-market trading on Thursday, extending the decline from Wednesday. Deutsche Bank Aktiengesellschaft's headquarters were raided by authorities on Wednesday. Sewing, who has dealt with some costly legacy issues early in his tenure, now faces new legal challenges with this latest search. However, rising interest rates and trading rebounds have helped Deutsche Bank Aktiengesellschaft return to profitability. In November last year, Sewing raised key return targets and promised to distribute 60% of the profits to shareholders. In a message to employees, Sewing said, "We know our goals and will never deviate from this path. The appearance of EU prosecutors' office personnel yesterday will not change this." According to sources, the search at Deutsche Bank Aktiengesellschaft's office is part of a money laundering investigation aimed at uncovering transactions between the bank's employees and companies linked to Roman Abramovich, who has been sanctioned in the past. These accusations involve trades that took place between 2013 and 2018. Deutsche Bank Aktiengesellschaft has stated that it will "fully cooperate with the investigation". Other legal challenges facing Sewing include lawsuits from a group of former managers who claim they were wrongly implicated in the bank accounting scandal at Banca Monte dei Paschi di Siena SpA. Looking ahead, Deutsche Bank Aktiengesellschaft expects revenue to increase to approximately 33 billion euros this year, driven mainly by growth in lending and fee income. In terms of investment banking business, revenue is expected to be slightly higher than last year, with advisory and capital market businesses showing growth while trading income remains flat. Non-interest expenses are expected to be slightly higher than 21 billion euros, in line with expectations released in November. Later on Wednesday, Deutsche Bank Aktiengesellschaft's asset management company, DWS Group, raised its medium-term profit target and announced the distribution of a special dividend after successfully managing costs and avoiding large-scale acquisitions. Additionally, in the fourth quarter, credit loss provisions were 3.95 billion euros, equivalent to 33 basis points of average loans, lower than analysts' forecast of 4.083 billion euros, a 5% decrease from the previous quarter, and a 6% decrease from the same period last year. By the end of 2025, total deposits amounted to 692 billion euros, an increase of 26 billion euros from the end of 2024. Its CET 1 capital adequacy ratio (reflecting the bank's solvency) in the fourth quarter was 14.2%, slightly lower than the 14.5% from the previous quarter but higher than the 13.8% from the same period in 2024. The 2025 fiscal year also marked the end of a three-year financial plan for Deutsche Bank Aktiengesellschaft, in which the bank committed to and achieved key profit targets exceeding 10% (return on tangible equity). Credit rating agency S&P stated in a report last week that the profitability of the German banking sector will continue to improve after 2025, partly due to government infrastructure and defense expenditure plans driving increased lending. In December last year, S&P upgraded Deutsche Bank Aktiengesellschaft's rating outlook to positive.