Wracked by sub-prime crisis, Deutsche Bank posts first quarterly loss in five years
30 Apr 2008
After the American banks, its time for their European cousins to declare first-quarter results, and as expected, there's nothing to be happy about. On Tuesday, Deutsche Bank, Germany's biggest and one of the top three investment institutions in the world, joined the list of banks posting losses in the first quarter, and consequently, posted its first quarterly loss in five years.
Although the figures were relatively small when compared to peers like Switzerland's UBS and US's Citigroup, they were still considerable and slightly more than its own estimates earlier this month. Unlike these banks, and many others that had sought additional funding to tide over the sub-prime crisis, Deutsche Bank hasn't yet resorted to raising additional capital. It has also cut significantly lesser jobs than other beleaguered financial institutions.
Even though Deutsche Bank had then announced that it expects to write off about €2.5 billion ($3.9 billion; £1.9 billion) in the first quarter of 2008 on leveraged loans, commercial real estate and residential mortgage-backed securities because of the current global credit turmoil, the actual figures were a little higher at €2.5 billion ($4.2 billion; £2.13 billion).
See: UBS announces fresh $19 billion loss; Deutsche Bank loses additional $3.9 billion
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The bank reported a pre-tax loss of €254 million for the first three months of the year, against a €3.16 billion profit a year earlier, and saw revenues in its investment bank dwindle from €6.1 billion to €880 million as markets in key business areas such as leveraged finance and structured credit dried up.
In net terms, the present loss was at €131 million compared to €2.12 billion profit in 2007. This was somewhat better than analysts' estimate of a €170 million net loss.
However, earnings were considerably lifted from selling stakes in companies and a tax gain. Deutsche Bank generated €854 million from selling shares in companies including Daimler AG, the world's second- biggest manufacturer of luxury cars, Allianz SE, Europe's biggest insurer, and industrial gas maker Linde AG. Additionally, it also booked a tax gain of €113 million, which helped offset losses.
Breaking down the figures, Deutsche Bank wrote down the value of leveraged loans and loan commitments by €1.8 billion and of securities backed by residential and commercial mortgages by €885 million in the first quarter. The write-downs are net figures after hedges and fees.
Its investment-banking unit, which accounted for almost half of last year's earnings, reported a €1.6 billion pretax loss. The unit had revenue of €1.5 billion in the first quarter, compared with €6.7 billion in the period a year earlier.
Justifying the results, CEO Josef Ackermann said, "In the first quarter of this year, the financial market conditions were the most difficult in recent memory. In March, pressure on the banking sector was more intense than at any time since the current credit downturn began." However, he added that there are ''encouraging'' signs that markets are stabilizing. In his positive attitude, he shares space with many other prominent banking executives who have promised that the worst is over.
Also see:
Merrill Lynch posts deep quarterly loss; to cut 10 per cent of workforce
Wachovia reports $393 million Q1 loss; plans $7 billion capital infusion
