Finance News
Money News/Reuters
Deutsche Bank Writedowns Exceed $11 Billion
Thursday, July 31, 2008 8:37 AM
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FRANKFURT -- Deutsche Bank AG announced fresh writedowns on
Thursday, taking its bill from the global financial crisis beyond $11
billion.
Germany's flagship financier had originally been seen as one of
the few to emerge unscathed from the crisis, but as the problems on global
markets continue Deutsche Bank is being sucked ever deeper into trouble.
The group's pretax profit collapsed in the second quarter to 642
million euros ($1 billion) — a fraction of the 2.7 billion euros it made a
year earlier — as writedowns ate into its bottom line.
Deutsche listed its latest injuries from the global crisis,
saying it made 1 billion euros of writedowns in residential mortgage-backed
securities and a further 500 million euros linked to monoline insurers which
insure against bond defaults.
Commercial real estate investments cost it 300 million.
Its bill from the turmoil, while modest compared to Swiss rival
UBS AG, has overtaken that of its Zurich-based competitor Credit Suisse
Group AG, which has made about $8 billion of writedowns.
The extra damage in the second quarter, however, had been
broadly expected and Deutsche's shares were just 0.4 percent lower at 3:24
a.m. EDT, in line with European rivals.
"We remain cautious for the remainder of 2008," said Chief
Executive Josef Ackermann, who also chairs top global banking group the
Institute of International Finance.
His remarks contrast with his bullish statements of the past. As
late as last November, Ackermann signaled he saw no further writedowns and
stood by his goal of making a pretax profit of 8.4 billion euros this year,
a target that has since been quietly dropped.
So far this year, the bank has made roughly 400 million euros.
Konrad Becker, an analyst with Merck Finck, said: "the
writedowns are the decisive point and show that the crisis lingers ... But
the results, if you look at costs and interest income, for example, are
better than expected."
Deutsche's wage bill fell by almost one third to almost 2.7
billion euros in the second quarter as bonus payouts fell.
INVESTMENT BANKING
Many investors believe Deutsche is over-reliant on investment
banking, which is suffering as the liquidity which oils international
financial markets dries up.
Credit Suisse, for example, can fall back on its business
managing the money of the world's rich, which accounted for roughly 40
percent of profits even in the investment banking bull years.
Deutsche Bank, by contrast, earned almost two thirds of pretax
profit in 2006 from investment banking.
Its investment banking business dipped into the red in the
second quarter this year, making a loss of 311 million euros after the
writedowns.
Investor concern is reflected in Deutsche's share price. It is
trading on a price earnings ratio of about 6 — making it cheaper than its
Swiss rival, which is priced above 8 times.
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