FRANKFURT (Reuters) – 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.
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.
By John O'Donnell
(Editing by Rosalba O'Brien)