Deutsche Bank Profit Rises on Trading Gains; Loan Losses Climb

Deutsche Bank AG, Germany’s biggest bank, said second-quarter profit rose 68 percent as increased revenue from trading bonds and stocks offset a surge in loan- loss provisions.

Deutsche Bank fell as much as 7.2 percent in Frankfurt trading as the company set aside 1 billion euros ($1.4 billion) for risky loans, more than the 634 million-euro estimate of analysts surveyed by Bloomberg. Net income rose to 1.09 billion euros, the Frankfurt-based bank said in a statement today.

Chief Executive Officer Josef Ackermann said in a letter to shareholders he remains “cautious” on the economic outlook, and the bank predicted a further increase in private and corporate insolvencies. A fourfold gain in income from debt sales and an improvement in equity trading in the second quarter countered a slump in profit at the consumer banking unit and wider-than-estimated loss in asset management.

“Deutsche Bank had to significantly increase loan-loss provisions because of the worsening economy, and it won’t get better anytime soon,” said Lutz Roehmeyer, who helps manage about $15.5 billion at Landesbank Berlin Investment in Berlin, including Deutsche Bank shares. “The investment bank generated a lot of revenue thanks to the boom in corporate bond sales, but retail banking, asset and wealth management and transaction banking really lost out.”

Deutsche Bank fell 2.68 euros, or 5.2 percent, to 49.35 euros by 9:39 a.m. in Frankfurt, reducing the gain this year to 77 percent. The bank is the sixth-biggest gainer on the index of 63 European financial companies this year.

Debt and Equity

The investment bank, run by Anshu Jain and Michael Cohrs, posted pretax profit of 828 million euros after a loss a year earlier. Analysts estimated earnings of 1.08 billion euros.

The company’s global markets business, run by Jain, had debt trading income of 2.6 billion euros on credit, interest- rate and currency sales, below analysts’ estimates. Equity trading generated 903 million euros in revenue, the most in six quarters and more than analysts predicted.

Credit Suisse Group AG of Zurich and New York-based Goldman Sachs Group Inc. and JPMorgan Chase & Co. also generated higher trading income in the past quarter.

“The bond business is definitely a revenue driver at the moment, and we’ve seen that banks are earning a lot from that,” said Daniel Hupfer, who helps manage about $42 billion, including Deutsche Bank shares, at M.M. Warburg in Hamburg.

The asset and wealth management business reported a pretax loss of 85 million euros, a bigger deficit than analysts estimated, compared with a year-earlier profit. Earnings at the consumer bank fell 83 percent to 55 million euros.

link....