Dropping Deutsche Bank Q1 Profit after Crisis Reduces Trading

Josef Ackermann _CEO of Deutsche Bank

Josef Ackermann _CEO of Deutsche Bank

Deutsche Bank AG reported a fall in its first-quarter net profit by one-third from a record level a year earlier. Deutsche Bank blames this on the sluggish client activity, which has continued to pressurize investment banking activities across the board and due to exceptional charges has resulted in the bank’s effort to reduce risks.

Outgoing Chief Executive Josef Ackermann said, “We continue to pursue our strategy of reducing legacy risks and strengthening our capital position”. He added that Deutsche Bank still posted “solid results” against the backdrop “of continued caution in global financial markets”.

Less Profits than Expected

The biggest lender of Germany has posted a net profit of 1.38 billion Euros, less than the 1.64 billion Euros what analysts had expected and less than the 2.06 billion Euros last year. The efforts of the bank to lessen the risks and strengthen the capital position led to destruction charge of exceptional 300 million Euros on exiting the exposure to generic drug maker Actavis and 210 million Euros proceeding related expenses.

The narrowly observed pretax profit of 1.88 billion Euros fell short of the agreement estimate of 2.44 billion Euros, although at least rolled back from a loss in 2011’s last quarter, when Deutsche Bank and the banking sector were hit hard by heavy debts from the eurozone debt crisis and a loss in the investment banking unit. Deutsche Bank’s performance reflects one of the Swiss rivals Credit Suisse. It also reported a sharp drop in net profit for the first quarter due to an accounting loss on its own debt and lower revenue at the investment bank.

Investment Banking Revenues Doubled Compared to Previous Quarter

Barclays Capital research note published this week said, “Investment banking revenue at Morgan Stanley, Citigroup, Bank of America, JP Morgan and Goldman Sachs more than doubled compared with the previous quarter and leveled with the first quarter 2011”.

U.S. banks Goldman Sachs, Morgan Stanley and JP Morgan Chase, for now reported surprisingly strong Q1 results as an improvement in capital markets and the economy helped the banks to show a stronger rebound from a lackluster fourth quarter.

Chief Financial Officer Stefan Krause said in an analyst presentation, “Lower year-on-year revenues reflect ongoing uncertain macro environment and deliberately lower inventory and value at risk levels”. Pretax profit in Deutsche Bank’s investment banking unit fell by one quarter to 1.7 billion Euros as revenue in almost every segment declined.

Sluggish client activity and thus falling revenue also affected Deutsche Bank’s private and business client operations, where profit halved to 413 million Euros. On the flipside, the group’s global transaction banking unit increased profit by about one-quarter to 340 million Euros on the back of growth in fee and interest income, the bank said.

Dhwani Shah

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