28 Apr 2009
April 28 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, returned to profit in the first quarter as a thaw in credit markets buoyed trading income at the investment bank.The company fell as much as 7.9 percent in Frankfurt trading on concern it may face further writedowns, and as earnings from the so-called stable businesses of asset management and transaction banking missed analysts' estimates.
"Deutsche Bank showed it can quickly adapt to the market situation and move in areas where there's money to earn, namely in debt," said Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment, including shares of the bank. "But there may be further impairments in the second half, especially because markdowns on consumer loans and corporate finance were insufficient in my opinion."
Deutsche Bank, which posted its first annual loss in more than 50 years in 2008, profited from record sales of corporate bonds and an improvement in credit markets in the first quarter. Chief Executive Officer Josef Ackermann agreed to extend his contract by three years after leading the bank back to profit. Net income totaled 1.19 billion euros, compared with a loss of 131 million euros a year before, the bank said today.
The stock declined 2.56 euros, or 5.9 percent, to 40.69 euros by 10:13 a.m. in Frankfurt trading. Deutsche Bank has gained 46 percent so far this year, making it the third-biggest gainer in the Bloomberg index of 65 European banks. The company has a market value of 25.2 billion euros.
Citigroup, Bank of America
Deutsche Bank followed declines by Citigroup Inc. and Bank of America Corp. in German trading after the Wall Street Journal said early results of the U.S. government's stress tests show the companies may need additional capital. The report is also weighing on the German bank's shares, Roehmeyer said. Executives from the companies are meeting with regulators to dispute the findings, the Journal reported, citing unidentified people with knowledge of the matter.
Deutsche Bank's pretax profit from global transaction banking fell 12 percent to 221 million euros, missing analyst estimates. The asset and wealth management business had a pretax loss of 173 million euros, compared with a profit of 188 million euros a year earlier, after declines in real-estate asset values led to losses at its alternative assets business. Analysts had forecast a profit. The consumer bank earned 206 million euros, compared with 304 million euros a year earlier.
Credit Market Thaw
Ackermann has been investing in consumer banking to reduce dependence on investment banking, which generated about half of the group's earnings in 2007. Deutsche Bank earlier this year acquired a stake in retail lender Deutsche Postbank AG and has an option to gain control in the years ahead.
The freeze in global credit markets showed signs of a thaw in the first quarter, as sales of corporate bonds surged to a record 387 billion euros, double the amount raised in the same period in 2008, according to data compiled by Bloomberg.
Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup and JPMorgan Chase & Co. announced first-quarter results that beat analysts' forecasts as trading revenue surged.
Deutsche Bank said late yesterday that Ackermann, 61, agreed to a request from the bank's supervisory board to remain CEO until the annual general meeting in 2013. The Swiss-born executive, who helped Deutsche Bank skirt the worst of the U.S. subprime mortgage crash and resist taking government aid, had been scheduled to step down in May 2010.
‘Caution and Vigilance'
"Looking forward, we see continued challenges, but also opportunities, in our business environment," Ackermann said in a letter to shareholders today. "Nevertheless, continued caution and vigilance will be essential."
The investment-banking unit, led by Anshu Jain and Michael Cohrs, reported a 1.32 billion-euro pretax profit, helped by trading of bonds, currencies and commodities. The division, known as corporate banking and securities, had a record pretax loss of 5.77 billion euros in the last three months of 2008 as the worst financial crisis since the Great Depression pummeled bond and stock trading.
Net revenue from fixed-income sales and trading more than doubled in the quarter to 3.76 billion euros. Equities sales and trading declined 63 percent to 275 million euros.
No State Aid
The German bank booked 1 billion euros in markdowns in the first quarter, including 841 million euros in provisions for bond insurers. Deutsche Bank has booked more than 10 billion euros in markdowns since the outbreak of the U.S. subprime mortgage crisis in 2007. Zurich-based UBS AG, which reported a first-quarter loss of almost 2 billion francs, has taken writedowns of $51 billion, and New York-based Citigroup $102 billion, according to data compiled by Bloomberg.
The world's biggest financial companies have booked more than $1.3 trillion in writedowns and credit-related losses since the beginning of the U.S. subprime mortgage crisis in 2007, forcing them to raise $1.1 trillion euros in capital from government and investors, according to Bloomberg data.
Deutsche Bank has repeatedly said it doesn't need to raise capital from the state or investors and has no plan to tap Germany's 480 billion-euro bank-rescue fund. Commerzbank AG, Germany's second-largest bank, is getting 18.2 billion euros from the state fund.
