Deutsche Bank Sees More Insolvencies, Less Provisions Next Year

(Bloomberg) -- Deutsche Bank AG Chief Executive Officer Christian Sewing said the lender sees lower credit provisions next year even as corporate insolvencies rise, signaling it expects the worst of the pandemic-induced economic uncertainty to be over.

Risk provisioning will “peak” in 2020 as an economic recovery sets in, further boosted by the likely success of developing a vaccine, Sewing said at a conference in Frankfurt on Friday. But more companies will probably default because government aid programs, including the suspension of insolvency requirements in Germany, will come to an end.

Deutsche Bank, as with many other lenders, has been forced by the pandemic to set aside more money to deal with the likely economic impact on its borrowers and potential non payment of debt. Many regulators have warned that worse may be yet to come, though banks have been more optimistic that they can weather the turmoil.

Speaking at the same conference, HSBC Holdings Plc Chairman Mark Tucker echoed some of the remarks. European banks’ capital position ‘is strong, the provisioning is tight,” he said. Given that, and the potential for successful vaccines, “the sector is strong enough to withstand corporate insolvencies through this crisis.”

Credit provisions at Frankfurt, Germany-based Deutsche Bank are expected to soar to 1.99 billion euros ($2.4 billion) this year, plunging it into a loss, according to an analyst consensus forecast compiled by Bloomberg. That would be almost three times higher than last year and the highest level since 2013.

The bank has begun to focus on cost cuts and Sewing highlighted again that there will be less business travel in the future. Deutsche Bank last year spent about 500 million euros on travel expenses, marketing and hosting clients, according to its annual report.

In addition, more staff will work from home, he said at the conference. The lender spent 1.7 billion euros on rent and furniture last year, an amount it had expected to remain stable before the pandemic hit.

The outbreak has “impacted the bank’s cost structure,” Deutsche Bank said, adding that its now assessing options to reduce real estate cost through higher levels of working from home.

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