Deutsche Bank AG co-Chief Executive Officer John Cryan unveiledthe firm's biggest quarterly loss in at least a decade and mayeliminate a dividend that's stood since Germany's postwarreconstruction as he tries to overhaul the firm without askingshareholders for more capital.

Europe's biggest investment bank expects a third-quarter loss of6.2 billion euros ($7 billion) after writing down the value of itstwo largest divisions and boosting reserves for legal costs. ItsAmerican depositary receipts tumbled 6.9 percent after thedisclosure late Wednesday in extended trading in New York. Cryan,in a memo to staff, said employees will share some of the burdenwhen the firm sets year- end bonuses.

The charges clear the way for a strategy that Cryan, who becameco-CEO in July, is preparing to present later this month as helooks to shore up capital and boost profitability. Spending onregulatory and compliance costs have overwhelmed the firm's effortsto cut costs.

Cryan “wants to start off with a clean slate,” said David Kass,a professor at the University of Maryland's Robert H. Smith Schoolof Business.

The firm said it expects to book a 5.8 billion-euro writedown ashigher capital requirements reduce the value of its investment bankand it adjusts the estimate of what it will receive in the disposalof Deutsche Postbank AG. Goodwill and intangible assets at the coreof that adjustment were booked when the firm acquired businesses —including Bankers Trust in 1999 and Postbank in 2010 — formore than the market value of their net assets, Cryan wrote in hismemo. The Frankfurt-based lender also is adding about 1.2 billioneuros to its litigation reserves.

The writedowns and dividend recommendation “have to be factoredin some way into our upcoming decisions on variable compensationfor the year,” Cryan, 54, wrote in the memo posted on the firm'swebsite. Final decisions on bonuses haven't been made yet, he said.“You have my personal commitment to try to achieve a fair balancebetween staff and shareholder interests.”

The impairment charges will dwarf the 1.9 billion euros inwritedowns that Anshu Jain, Cryan's predecessor, took during thefourth quarter of 2012, his first year in the top job. The bank'slatest announcement signals the magnitude of the challenge that itfaces, with litigation issues set to persist for years to come,Goldman Sach Groups Inc. said in a note.

Deutsche Bank said it may cut or eliminate the annual dividend,which was 75 cents for last year. The company has paid a dividendsince at least 1957, when Deutsche Bank was re-established asa centrally managed financial institution. The payout hasn't beenlowered since 2008.

Capital Ratios

The impairments announced Wednesday won't have a “significantimpact” on Deutsche Bank's capital ratios, the bank said. Thecharges also include about 600 million euros on the carrying valueof a 20 percent stake in China's Huaxia Bank Co. The German lendersaid it “no longer considers this stake to be strategic.”

“This is the prelude to a potential share sale in Huaxia Bank,probably in April next year,” said Ma Kunpeng, a Shanghai- basedanalyst at Sinolink Securities Co. A lockup covering part of theholding expires April 26.

Deutsche Bank bought into Beijing-based Huaxia Bank, one of thesmallest listed national lenders, in 2005 and its stake is nowworth about $3.5 billion. Reuters reported in April that the Germanbank had received offers for the asset. Global firms includingGoldman Sachs Group Inc. have sold stakes in Chinese banks inrecent years as new rules require more capital be held against theinvestments.

Cryan, who will share the CEO post with Juergen Fitschen untilMay, inherited a strategy to boost returns by lowering expensesabout 15 percent by 2020 and shrinking assets at the investmentbank as much as 17 percent through 2018. The bank will release thedetails of its plan and final figures for the third quarter on Oct.29.

“The sour pill always comes first,” Sebastien Pigeon, an analystcovering European financial firms at Morningstar Inc., said ofWednesday's announcement. “You drop the bad news first, before theupcoming investor meeting to review his strategy.”

Cryan is seeking to avoid tapping shareholders for funds whilefocusing on reorganizing the bank to meet growing demands forbuffers from regulators. In July he said “raising additionalcapital would not solve our core problem of reversing our lowfinancial returns and our poor organic capital generation.”

Deutsche Bank had turned to Postbank to diversify its fundingmix by boosting consumer deposits in the midst of the globalfinancial crisis. With its disposal, Deutsche Bank will cut itsworkforce by about 15,000, and the lender is considering cutting8,000 additional jobs, a person with knowledge of the matter saidlast month.

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