Deutsche Bank Reports EU4.8 Billion Loss on Trading (Update3) By Jann Bettinga and Oliver Suess Jan. 14 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest bank, reported a record loss of about 4.8 billion euros ($6.3 billion) in the fourth quarter after the worst financial crisis since the Great Depression pummeled stock and bond trading. The bank fell 9 percent in Frankfurt trading. The loss, which compares with a profit of about 1 billion euros a year earlier, also reflects provisions for debt backed by bond insurers and “substantial injections” of cash into money market funds, the Frankfurt-based bank said today. Deutsche Bank has “scaled back or exited trading strategies most affected by market turbulence,” Chief Executive Officer Josef Ackermann said in a statement. The German bank lost about $1 billion from bad bets involving bonds hedged by credit-default swaps in the quarter, plus $500 million trading equities, two people with knowledge of the matter said this week. The company reported its first annual loss in more than 50 years. “The enormous fourth-quarter and full-year loss is a shock to investors,” Michael Seufert, an analyst at NordLB in Hanover with a “sell” rating on Deutsche Bank, wrote in a note to clients today. “The process of reducing risks and scaling down the balance sheet is proving to be very painful.” Deutsche Bank fell 2.19 euros to 22.09 euros in Frankfurt, bringing declines in 2009 to 21 percent. Separately, Deutsche Post AG, the country’s largest mail carrier, will take a stake of about 8 percent in Deutsche Bank as part of a revised deal to sell shares in Deutsche Postbank AG to Germany’s biggest bank. Lower Dividend Deutsche Bank said its fourth-quarter loss reflects “exceptional market conditions, which severely impacted results in the sales and trading businesses.” Credit trading, as well as buying and selling stocks and bonds for the bank’s own account, were hardest hit, the company said. Boaz Weinstein, 35, the New York-based co-head of global credit trading, plans to leave the firm with about 15 of his colleagues in the second quarter to start a hedge fund, the bank said last week. The departure comes as Deutsche Bank shut its proprietary credit desk. Deutsche Bank said it accrued a dividend of 50 cents a share for 2008, after paying 4.50 euros a share for 2007. Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Credit Suisse Group AG also have reported trading losses after the September bankruptcy of New York-based Lehman Brothers Holdings Inc. All the banks, except Goldman Sachs, have said they are shutting down some proprietary-trading operations. ‘Believer’ in Investment Banking Goldman Sachs and JPMorgan of New York, which along with Deutsche Bank mostly sidestepped the meltdown of the U.S. subprime mortgage market, face losses as investment-grade bonds had the worst performance in at least 35 years and stock markets headed for their biggest rout. Deutsche Bank’s trading for clients has seen higher volumes and “record” revenues in the first two weeks of this year, Ackermann told reporters and analysts on a conference call today. The CEO said he is a “strong believer” in investment banking. The division, led byAnshu Jain, 46, and Michael Cohrs, 52, helped generate about half of Deutsche Bank’s earnings in 2007. The bank will release a divisional breakdown for the fourth quarter when it publishes detailed results next month. Deutsche Bank reduced its risks from loans for leveraged buyouts to less than 1 billion euros at the end of the fourth quarter from 11.9 billion euros at the end of the third. Its Tier 1 capital ratio, used to measure a bank’s ability to absorb loan losses, was probably about 10 percent at the end of the quarter, in line with a target, the bank said. Cutting Leverage “We have significantly reduced trading assets, and thus reduced balance sheet leverage,” said Ackermann, 60. For the year, Deutsche Bank posted a loss of about 3.9 billion euros. Ackermann aims to shrink Deutsche Bank’s assets and reduce the company’s dependence on borrowed money to avoid raising funds from investors or taking a handout from the government. Deutsche Bank has set a goal of cutting the bank’s leverage ratio -- total assets divided by shareholder equity, using U.S. accounting principles for derivatives -- to 30 times by the end of the first quarter from 38 times at the end of June. “This is bad news that had to be feared as Deutsche Bank didn’t have an alternative to reducing its risk positions,” said Lutz Roehmeyer, who helps manage about $16 billion at Landesbank Berlin Investment in Berlin and owns Deutsche Bank shares. ‘Extreme New Phase’ Deutsche Bank doesn’t need to raise capital and has no plan to tap Germany’s 500 billion-euro bank-rescue fund or seek investments from sovereign wealth funds, Ackermann said on the conference call. Commerzbank AG, Germany’s second-largest bank, is getting 18.2 billion euros from the state fund. “Until the fourth quarter we weathered the crisis relatively well,” Ackermann said today. “The collapse of Lehman triggered a much more extreme new phase of the crisis.” October was the worst month of the quarter, Ackermann said. His counterpart at JPMorgan, Jamie Dimon, has called November and December “terrible” for businesses including trading. Goldman Sachs, the world’s most profitable securities firm last year, had a fourth-quarter loss of $2.1 billion, its first since going public in 1999. Credit Suisse, the second-biggest Swiss bank, said Dec. 4 it will eliminate 5,300 jobs after about 3 billion Swiss francs ($2.7 billion) of losses in the previous two months. In the new Postbank deal, Deutsche Bank will acquire 22.9 percent of the Bonn-based consumer bank for about 1.1 billion euros in stock in a first step. The bank will also buy 2.7 billion euros of bonds that will be converted into a 27.4 percent Postbank stake in three years. The new agreement will allow Deutsche Bank “to complete the acquisition in a more capital-efficient manner,” the company said today. The deal will also give Deutsche Bank an option to buy Deutsche Post’s remaining 12.1 percent stake after three years, while Deutsche Post will have an option to sell that shareholding to Deutsche Bank. To contact the reporter on this story: Jann Bettinga in Frankfurt atjbettinga@bloomberg.netOliver Suess in Munich at osuess@bloomberg.net.
Wednesday 14 January 2009
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