Deutsche Bank returned to the black while merger talks are going on

Deutsche Bank posted its first full-year net profit since 2014 on Friday, despite a weak fourth quarter, amid growing merger speculation and a series of uphill struggles.

The profit number of 341 million euros ($390 million) for 2018 failed to beat market consensus, with a Reuters poll of analysts predicting a figure of 461 million euros. For the fourth-quarter alone, the bank posted as loss of 409 million euros, which also failed to match estimates.

“Our return to profitability shows that Deutsche Bank is on the right track. Now, our priority is to take the next step. In 2019 we aim not only to save costs but also to make focused investments in growth. We aim to grow profitability substantially through the current year and beyond,” CEO Christian Sewing said in statement.

Net revenues came in at 25 billion euros for the year and 5.5 billion for the last quarter of 2018, which both narrowly missed estimates in a Reuters poll. Its common equity tier-1 ratio, which indicates a bank’s strength, dropped to 13.6 percent in 2018, versus 14 percent at the end of 2017. Shares fell 2 percent shortly after markets opened in Europe on Friday.

Speculation has mounted that a government-brokered merger with Commerzbank will be necessary, though it’s not clear whether it would provide a lasting solution for either beleaguered institution. Deutsche Bank executives declined to comment on such matters during calls with analyst and media today, but the share prices for both banks declined yesterday after Bloomberg reported that such a deal could happen by mid-2019.

Commerzbank is part-owned by the German government and its shares have slumped as it tries to turn its business around. A concern is that both lenders will struggle if the economy slows, making emergency action even more difficult. There are signs that global trade tensions are beginning to impact Germany, Europe’s largest economy and an export powerhouse.

Deutsche Bank has had other troubles as well, such as allegations of money laundering, failed stress tests, and ratings downgrades. Deutsche Bank CFO James von Moltke told Bloomberg Television that the raid of the company’s headquarters last quarter as part of a money laundering probe had impacted its business during that three-month period, though he said the bank had made some progress in easing those concerns among customers.

“We feel we’re in control of our destiny,” the CFO told Bloomberg. And while declining to comment on merger rumors, he admitted that “over time, mergers, consolidation in the European banking sector would be sensible.”