Deutsche Bank 3Q profit rises
FRANKFURT, Germany --Deutsche Bank AG avoided the worst of the subprime quagmire that ensnared some other big banks, posting a better than expected third-quarter profit Wednesday despite some $3.17 billion in writedowns stemming from the loan crisis.
Chief Executive Josef Ackermann, who took the rare step of appearing on German television in September to concede that his bank had made mistakes, pledged that Germany's biggest bank had made a good start to the fourth quarter and the bank could still meet its financial targets.
Deutsche Bank earned 1.62 billion euros ($2.3 billion) in the July-September period, up from 1.24 billion euros a year earlier and ahead of the 1.4 billion euros ($2 billion) Deutsche Bank had forecast.
However, pretax profit slipped 19 percent to 1.45 billion euros ($2.1 billion) as a result of the 2.2 billion euros in writedowns -- which have plagued other big banks and brokerages in Europe and the U.S. The pretax results were still better than the 1.2 billion euros ($1.7 billion) the bank had said were likely earlier this month.
While Deutsche Bank's results clearly reflected the tumult in financial markets, Celent analyst Axel Pierron said its range of activities appeared to be helping shield it from the major losses and writedowns reported by other big banks and financial institutions.
"The diversification of Deutsche Bank operations has allowed the bank to resist better the current economic turmoil compared to its competitors of which the sources of revenues are more concentrated, such as Merrill Lynch," Pierron said.
Merrill Lynch, the world's largest brokerage, posted a $2.24 billion (1.55 billion euros) quarterly loss and some analysts have speculated that it faces a $4 billion (2.78 billion euros) writedown during the fourth quarter -- on top of a $7.9 billion (5.48 billion euros) charge taken last quarter.
On Tuesday, Switzerland's UBS AG posted a loss of 830 million Swiss francs ($712.9 million), largely the result of bad investments in U.S. subprime mortgages, and said it may have more writedowns in the fourth quarter.
Relieved investors sent Deutsche Bank shares up 3.7 percent to close at 92.05 euros ($132.65) in Frankfurt.
But Deutsche Bank was not immune to the waves of the world economy. Its net revenue fell 20 percent from a year earlier to 5.1 billion euros ($7.35 billion) -- below the 5.56 billion euros ($8 billion) forecast by analysts polled by Dow Jones Newswires.
That decline included a 1.56 billion euros ($2.25 billion) writedown of assets on its trading books, including 730 million euros ($1.05 billion) from proprietary trading, Chief Financial Officer Anthony di Iorio said.
Like Ackermann, di Iorio said there were improvements to be seen but he remained cautious.
"We are beginning to see some signs of (liquidity) improving, although we want to see it develop further before declaring victory," he said.
The Frankfurt-based bank also reported other losses, particularly at its corporate and investment banking unit, which was hit by the writedowns, posting a pretax loss of 179 million euros ($257.9 million). Still, the loss was less than the 250 million euros to 350 million euros ($360.2 million to $504.2 million) the bank had originally forecast.
Deutsche Bank's lending, called origination revenue, was at a negative 120 million euros ($172.9 million), reflecting 603 million euros ($868.7 million) in writedowns on leveraged loans and loan commitments.
That was offset by revenue from the bank's role as a merger and acquisition adviser, which totaled 269 million euros ($387.6 million) in the quarter, the best ever.
The bank's asset and wealth management pretax profit rose 45 percent, and its private and business client unit posted a 15 percent gain in pretax profit. Third-quarter profit was also helped by 182 million euros ($262 million) in tax gains and 629 million euros ($906 million) in capital gains.
"The third quarter of 2007 was a period of exceptional turbulence in financial markets," Ackermann said in a statement, adding that those challenges still exist. But if markets function at normal levels, "we reaffirm our commitment to delivering on our 2008 financial targets."
In the first nine months of the year, Deutsche Bank's profit rose 30 percent to 5.52 billion euros ($7.95 billion). Total revenue rose 11 percent to 15.25 billion euros ($22 billion).
Pierron said that "thanks to the good results during the first semester, the bank is able to account for net growth in 2007 compared to 2006."
Deutsche Bank said it still expects a pretax profit of 8.4 billion euros ($12.1 billion) in 2008.
"Looking forward, challenges undoubtedly remain; however, this is also a time of opportunity for Deutsche Bank," Ackermann said. "As a market leader in investment banking, and a major global asset gatherer, we stand to benefit from the flight to quality."
"Strategically, our path is clear: we stay the course!" he said.
------
On the Net:
