(Updates with shares in fifth paragraph.)
Oct. 25 (Bloomberg) -- Deutsche Bank AG, Europe’s biggest investment bank by revenue, reported third-quarter profit that beat analysts’ estimates as gains in consumer banking and asset management cushioned a decline in trading revenue.
Germany’s biggest bank had net income of 725 million euros ($1 billion) after a loss of 1.21 billion euros in the year- earlier period on writedowns related to the purchase of Deutsche Postbank AG, the Frankfurt-based lender said in a statement on its website today. Analysts estimated a quarterly profit of 343 million euros.
Deutsche Bank scrapped its full-year profit target earlier this month and announced 500 job cuts after the sovereign debt crisis reduced revenue at the securities unit. While European lenders grappled with concerns over Greece and policy makers’ calls to boost capital, the biggest Wall Street firms posted their worst quarter in trading and investment banking since the depths of the credit crunch.
“The third quarter has been very weak for investment banks and it may be the trough, but that depends on the outcome of the sovereign debt crisis,” Olaf Kayser, an analyst at Landesbank Baden-Wuerttemberg in Mainz who has a “buy” rating on the stock. “The key for Deutsche Bank is winning market share from rivals even as earnings fall.”
Deutsche Bank was little changed at 28.48 euros by 9:33 a.m. in Frankfurt trading. The shares have declined about 27 percent this year, valuing the company at about 26 billion euros. That compares with a 29 percent drop in the Bloomberg Europe Banks and Financial Services Index of 46 stocks.
Earnings at the consumer banking unit rose 27 percent to 310 million euros, helped by the acquisition of Postbank, which doubled customers to about 29 million. Asset and wealth management, which was bolstered by last year’s purchase of Sal. Oppenheim, said profit doubled to 186 million euros.
The investment banking unit, known as corporate banking and securities and led by Anshu Jain, reported third-quarter pretax profit of 70 million euros, down from 1.1 billion euros a year earlier. That was lower than the 89 million-euro analyst estimate. Profit was hurt by a 310 million-euro charge related to the impairment of a German value-added tax claim.
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley posted $13.5 billion in trading revenue minus accounting gains for the third quarter, down 35 percent from a year earlier. Investment-banking revenue plunged 41 percent from the second quarter to $4.47 billion.
UBS AG, Switzerland’s biggest bank, said today third- quarter profit dropped 39 percent after reporting a $2.3 billion loss from unauthorized trading last month. Net income fell to 1.02 billion Swiss francs ($1.16 billion), surpassing analysts’ estimates.
Deutsche Bank Chief Executive Officer Josef Ackermann, who plans to hand over his post to Jain and Germany head Juergen Fitschen at the end of May, said on Oct. 4 that the firm is more exposed to a slowdown in Europe than some global and American peers. About 42 percent of sales and trading revenue comes from Europe, he said at the time.
“During the third quarter, the operating environment was more difficult than at any time since the end of 2008, driven by a deteriorating macro-economic outlook, and significant financial market turbulence,” Ackermann said in today’s statement. “We benefited significantly from the strategic decisions we have taken to recalibrate and de-risk our investment bank, increase the earnings contribution from our ’classic’ banking businesses, and strengthen our capital, liquidity and funding position.”
Deutsche Bank reported a day before European Union leaders meet in Brussels to try to hammer out a package to bolster the region’s rescue fund, recapitalize banks and convince investors to cut Greece’s debt load to prevent contagion from spreading to Italy and Spain.
European lenders may be required to raise about 100 billion euros in capital by mid-2012, based on a test by the European Banking Authority, according to two people briefed on the matter. German lenders may need 5.5 billion euros in fresh capital, according to Christian Brand, president of Germany’s VOeB association of public banks.
The world’s biggest banks are also negotiating with EU leaders over the size of losses on their Greek bonds as they seek a deal to cut the country’s debt load. Ackermann is helping lead the talks as chairman of the Institute of International Finance, the lobby group for 450 of the world’s biggest financial companies.
The German lender said on Oct. 4 that it wrote down the value of its Greek debt by 250 million euros to reflect worsening market prices. The exposure has been marked to market and amounts to 46 percent of the notional value, it said today.
Ackermann, 63, is counting on acquisitions such as retail lender Postbank and wealth manager Sal. Oppenheim Group to cut dependence on investment banking from 71 percent of pretax profit in 2009 to less than 60 percent in 2013.
The lender abandoned its full-year target for operating pretax profit of 10 billion euros earlier this month, citing worse-than-expected earnings at the investment bank. Consumer banking earnings were “well-above plan,” it said.
Deutsche Bank’s core Tier 1 capital ratio, a measure of financial strength that excludes certain hybrid instruments, fell to 10.1 percent at the end of the third quarter from 10.2 percent in the second quarter.
Sales and trading revenue from debt and other products fell 34 percent to 1.5 billion euros, in line with analysts’ estimates. Equity trading revenue decreased 41 percent to 384 million euros, missing estimates. Transaction banking pretax profit climbed 14 percent to 259 million euros in the quarter.
The bank reported a corporate investment loss of 85 million euros after a loss of 2.35 billion euros in the year-earlier period on the Postbank charge. Deutsche Bank reported a profit of 202 million euros in its consolidation and adjustments unit, helped by gains on “economically hedged positions” related to short-term euro interest rates. That compares to a loss of 349 million euros in the year-earlier period.
--With assistance from Elena Logutenkova in Zurich. Editors: Frank Connelly, Dylan Griffiths
To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at firstname.lastname@example.org; Nicholas Comfort in Frankfurt at email@example.com
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