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Deutsche Bank’s Profit Falls 76% on Crisis

Deutsche Bank AG, Germany’s largest bank, said profit fell 76 percent in the fourth quarter as Europe’s sovereign-debt crisis curbed trading and the company booked writedowns on holdings.

Net income fell to 147 million euros ($194 million) from 601 million euros a year earlier, the Frankfurt-based company said today in astatement. That missed the 556 million-euro average estimate of 12 analysts surveyed by Bloomberg. The investment bank had a 422 million-euro pretax loss.

Chief Executive Officer Josef Ackermann, who is delivering full-year results for the last time before stepping down at the end of May, was forced to abandon his goal of posting record profit last year as clients shied from trades amid the debt crisis. Deutsche Bank also took charges on litigation, Greek government bonds, Icelandic generic drug maker Actavis Group hf, a Las Vegas casino and its BHF-Bank AG unit in the fourth quarter, according to the statement.

“You can’t be optimistic given the market environment,” Olaf Kayser, an analyst with Landesbank Baden-Wuerttemberg who recommends investors buy the stock, said before the results were published. “The client activity just isn’t there, you can see it from the number of transactions falling.”

Anshu Jain, who will take over as co-CEO with Juergen Fitschen, said last week that 2012 has started “on a mildly better note” than 2011 ended.

‘Tail Event’

“Broadly the situation has improved, particularly the one in Europe,” Jain, the 49-year-old head of the investment bank, told Bloomberg Television’s Erik Schatzker in Davos, Switzerland, on Jan. 26. “But look, the possibility of a tail event continues to hang over us.” Until that changes, “high volatility is the new norm, and one we’ll all need to just live with,” he said.

Deutsche Bank advanced 21 percent in Frankfurt trading since the European Central Bank said Dec. 8 it would offer unlimited three-year loans to lenders — a decision Ackermann described to CNBC as important in easing some of the banking system’s “funding challenges.” Bloomberg’s 43-company European banks index climbed 15 percent in the period.

New York-based JPMorgan Chase & Co., the biggest U.S. bank by assets, posted a 23 percent decline in profit on lower investment-banking fees and revenue from trading stocks and bonds. Earnings at Goldman Sachs Group Inc., also based in New York, dropped 58 percent, leading the firm to cut compensation in response to falling revenue. Among the five largest Wall Street banks, only Morgan Stanley posted an increase in trading income, excluding accounting gains, in 2011.

Debt Trading

Deutsche Bank scrapped in November its operating pretax profit forecast of 10 billion euros for 2011 and announced 500 job cuts amid a “significant and unabated slowdown in client activity.” Ackermann’s purchase of Deutsche Postbank AG and Sal. Oppenheim Group to build up consumer-banking and wealth- management have failed to make up for lower investment banking.

The investment bank’s loss compared to a 603 million-euro pretax profit a year earlier and the 233 million-euro profit estimate from nine analysts. Revenue from debt trading dropped to 1.04 billion euros from 1.61 billion euros, missing the 1.47 billion-euro estimate, while equity trading revenue decreased to 539 million euros from 872 million euros, beating the 457 million-euro analyst survey.

Deutsche Bank booked costs of 380 million euros at the investment bank related to litigation and 154 million euros for U.K. and German bank levies.

Consumer Banking

Deutsche Bank consolidated the results of Postbank in December 2010, a purchase that followed the acquisitions of private-wealth manager Sal. Oppenheim and ABN Amro Holding NV’s commercial-banking operations in the Netherlands, as Ackermann added businesses with more predictable profits than investment banking.

Pretax earnings at the consumer banking unit climbed to 227 million euros from 222 million euros, missing the 384 million- euro average estimate in the analyst survey. The bank took charges on Greek bonds held at Postbank. Profit from the asset and wealth management business rose to 165 million euros, lower than the 180 million-euro estimate.

Deutsche Bank cited a “more challenging market environment” at the asset and wealth management division.

‘Winnowing Out’

The company has been a “big winner” in taking market share from rivals, Jain said in the interview, and there’s an opportunity for more gains as changes in the industry, including tougher capital rules and a restriction on business models, create a “winnowing out” among financial firms.

European leaders are demanding that some of the region’s largest banks increase reserves after financial firms agreed to accept losses on Greek debt to help rescue the country. Deutsche Bank was among six German banks told to raise a total of 13.1 billion euros to boost core Tier 1 capital as a ratio of risk- weighted assets to 9 percent or more by June 30, after writing down the value of sovereign bonds.

The company said Dec. 8 that it expected to plug the 3.2 billion-euro gap calculated by the European Banking Authority six months early, without saying how it will meet the goal.

The German firm in November announced a strategic review of its global asset-management division, excluding operations of the DWS mutual fund unit in Germany, Europe and Asia. Executives decided last month to pursue a sale of the businesses, which have almost 400 billion euros in assets under management, according to two people with knowledge of the matter.

Analysts will be watching for any further signs the bank will change direction under its new leadership.

‘Strategic Changes’

“It’s going to be exciting if strategic changes are announced,” said Kayser, the LBBW analyst. “The first steps are known, with the planned sale of asset-management operations.”

Deutsche Bank posted an impairment of 407 million euros related to Actavis, 97 million euros in expenses related to BHF- Bank and a 135 million-euro charge from the Cosmopolitan Resort & Casino in Las Vegas, which Deutsche Bank took over in 2008 when developer Ian Bruce Eichner defaulted on a loan. The writedowns contributed to a loss of 722 million euros at the corporate investments unit in the quarter.

The German lender took a 144 million-euro impairment charge on Greek bonds at its private clients and asset management unit, according to the statement.

 

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Revised EU Stress Test Would See 66 Banks Fail

At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise about 220 billion euros ($302.3 billion) of capital, Credit Suisse AG analysts said.

Royal Bank of Scotland Group Plc (RBS), Deutsche Bank AG and BNP Paribas (BNP) SA would need the most, a combined total of about 47 billion euros, analysts led by Carla Antunes-Silva wrote in a note to clients today. Societe Generale (GLE) SA and Barclays Plc (BARC)would each need about 13 billion euros of fresh capital.

Eight banks out of the 90 tested failed the European Banking Authority’s July 15 stress test, with a combined capital shortfall of 2.5 billion euros.

“We would see a bank recapitalization as a step in the right direction, although at this stage whilst the market is becoming increasingly optimistic, we remain cautious until further details” emerge, Antunes-Silva said. “We may see proposals over the coming days and weeks, but implementation may take longer than hoped for.”

European policy makers are debating how to recapitalize the region’s troubled banks as the sovereign debt crisis threatens to damage balance sheets, undermining recovery prospects. European leaders meet on Oct. 23 to discuss the crisis, which has driven Greece toward default and threatened the survival of the 17-nation currency.

Credit Suisse’s analysis is based on a re-run of the EBA’s July stress tests updated to reflect banks’ first-half results. It uses a 9 percent core Tier 1 capital ratio, rather than the 5 percent rate used in July.


Apple is worth as much as all euro zone banks

(Reuters) – Technology company Apple is now worth as much as the 32 biggest euro zone banks.

That’s the stark result from a steep fall in the share price of banks including Spain’s Santander, France’s BNP Paribas, Germany’s Deutsche Bank and Italy’s Unicredit, compared to a steady rise in Apple’s valuation, according to Thomson Reuters data.

Earlier on Friday the DJ STOXX euro zone banks index fell 4 percent, valuing its 32 members at $340 billion. That’s based on the market capitalization of their free-float shares, which for some French banks in particular is less than 100 percent.

The index has crashed by a third since the start of July, hammered by fears banks will lose billions from their holdings of euro zone government bonds and a failure of policymakers to stop a euro zone debt crisis from spreading.

The euro zone banks have lost three-quarters of their value since peaking in May 2007.

In contrast, Apple’s market capitalization has soared to $340 billion on the back of the success of innovative technology products like iPods, iPhones and iPads.