What to Look for in Deutsche Bank’s Earnings in Five Charts

(Bloomberg) -- Deutsche Bank AG Chief Executive Officer John Cryan is facing increasing headwinds a year after presenting his plan for turning around Europe’s biggest securities firm.

The U.S. Justice Department’s request that the bank pay $14 billion to settle a probe into mortgage-backed securities prompted concern about the company’s ability to withstand the financial hit from spiraling legal costs. In a quarterly update on Oct. 27, the Frankfurt-based lender’s executives will likely face questions on whether plans to cut 9,000 jobs and shrink assets go far enough to lower costs and raise capital levels at Germany’s largest bank.

Here are five charts illustrating some of the challenges the bank faces.

Deutsche Bank, which has faced the highest legal bills of any bank on the European continent, probably set aside more funds to pay fines and settle lawsuits in the third quarter, analyst estimates compiled by Bloomberg show. While the Justice Department’s request was more than double the lender’s total legal reserves at the end of June, Cryan has said he expects U.S. authorities to scale back the proposed settlement.

Deutsche Bank has struggled to raise capital levels as restructuring costs, legal provisions and falling revenue erode profit. Still, a reduction of assets in the third quarter may have boosted the lender’s key capital ratio for a second straight quarter, analyst estimates show. Under Cryan’s restructuring plan, the lender is targeting a common equity Tier 1 ratio of at least 12.5 percent by the end of 2018.

Cryan is seeking to boost capital levels and profitability by shutting parts of the bond-trading empire his predecessor Anshu Jain built. Deutsche Bank is exploring shrinking its U.S. operations including the investment bank as part of a wider global assessment, which evaluates businesses in the context of regulatory requirements, a person with knowledge of the matter has said.

Last October, Cryan started to accelerate the pace at which Deutsche Bank is shrinking a unit housing unwanted assets to close the division this year. The company said in July that third-quarter results would reflect winding down “of a long-dated structured transaction.”

While Deutsche Bank is seeking to boost revenue from advising on deals and the issuance of securities at its corporate and investment banking unit, the trading of stocks and bonds, housed in its global markets business, will remain the largest source of revenue in the third quarter, according to analyst estimates compiled by Bloomberg.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net. To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net, Ross Larsen