FRANKFURT (Reuters) - Deutsche Bank DBKGn.DE forecast lower full-year revenue and only a modest improvement in earnings on Thursday, after a drop in capital markets trading hit second-quarter sales.

FILE PHOTO: The head quarters of Germany's Deutsche Bank are photographed early evening in Frankfurt, Germany, January 31, 2017. REUTERS/Kai Pfaffenbach/File Photo

The muted outlook and a 10 percent fall in revenue sent shares in Germany’s biggest bank almost 4 percent lower by midday on concerns its turnaround could prove a long slog rather than a quick fix.

Chief Executive John Cryan said the group’s second-quarter profitability fell short of its longer-term goals.

“Revenues were not as universally strong as we would have liked, in large measure because of muted client activity in many of the capital markets,” he said in a statement.

Cryan later suggested that the outlook for trading income could improve in the second half of the year. In an interview on CNBC, Cryan said he “can’t imagine” volatility levels would stay as low as they currently are.

UBS said that it was pleased with Deutsche Bank’s progress on costs and capital. “But we think a fundamental re-rating would have to be driven by stronger revenues,” UBS analyst Daniele Brupbacher wrote to investors.

Deutsche Bank has become a major player on Wall Street over the past two decades but extravagant bets and poor conduct have resulted in a litigation bill of 15 billion euros ($17.6 billion) since 2009.

In an effort to repair the bank’s bottom line and reputation, Cryan has been cutting costs and focused on three divisions - corporate and investment banking, private and commercial banking, and asset management.

In March the bank announced it would partially list its asset management business in a deal that could raise 2 billion euros.

Investors expected the bank to move quickly to take advantage of buoyant equity markets, but the planned listing is now unlikely before the first half of next year and could come later.

The bank cut headcount in the quarter by 479 full-time staff, the majority in private and commercial banking. Staffing stood at 96,652 at the end of the quarter.

At the same time, the bank will incur costs - as yet unspecified - as a result of Britain’s exit from the European Union.

It is expecting to add jobs in Frankfurt, where it will replicate a structure that is interchangeable with its London operations.

The bank is recovering from multiple legal battles ranging from its role in the marketing of U.S. mortgage-backed securities to a so-called “mirror trading” scheme that could be used for money laundering.

Deutsche’s board has been trying to force former managers to pay for those misdeeds, and a deal is close. One current and 10 former Deutsche executives have agreed to waive just under 40 million euros in bonuses, people close to the matter said on Thursday.

Provisions for possible future legal action fell to 2.5 billion euros in the quarter. Deutsche said it anticipated its legal expenses to rise in the second half of 2017 after virtually no litigation expense in the first.

Deutsche Bank beat forecasts with a jump in second quarter net profit to 466 million euros from just 20 million a year earlier, helped by cost cutting. Analysts had forecast a profit of 273 million.

However, revenue fell 10 percent to 6.6 billion euros, and Deutsche said it expected revenue from its operating businesses to be lower in 2017 than last year. It had previously forecast broadly flat revenue.

“I wouldn’t like to suggest this is the level of revenues that we are happy with because we do want to grow the business,” Cryan said on CNBC.

Revenue at its cash-cow bond-trading division fell 12 percent as lower market volatility led to less client trading of interest rate and foreign exchange products. Sales fell 28 percent in equity trading.

Debt trading fell 40 percent at Goldman Sachs GS.N and declined by 4 to 19 percent at Morgan Stanley MS.N, Citigroup C.N, Bank of America BAC.N and JPMorgan JPM.N.