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Business

Deutsche Bank Primps Its Balance Sheet

The proceeds from divestments will enable Deutsche Bank to post a first-quarter profit this. But analysts disapprove, accusing the bank of selling its family silver to give a face-lift to its balance sheet.

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A statue of German poet Friedrich Schiller in front of Deutsche Bank's Frankfurt headquarters

By selling some of its shareholdings in the first few months of the year, Deutsche Bank has been primping its first-quarter results, due to be revealed on Monday alongside details of its future structure and strategic orientation.

The bank sold shares worth a total 1.1 billion euro in insurance giants Munich Re and Allianz, of which analysts expect 1 billion euro to be booked for the first quarter. The divestments reduced Deutsche's stake in Munich Re to 5.5% from 7.2% and its stake in Allianz to 3.66% from 4%.

Traders took a critical view of the bank's moves. "The market is responding negatively to the fact that Deutsche is selling its family silver to give a face-lift to its results," one said.

The divestments are a continuation of Deutsche's strategy to reduce its portfolio of shareholdings. It already sold shares in Munich Re and Allianz in 2000 and 2001. In the coming years, the bank plans to sell all remaining shares in the insurers. Their value at the end of 2001 totaled 15 billion euro.

Thanks to the divestments, Deutsche is set to post a clear profit for the first quarter, after losses in the year-ago period.

Analysts expect pretax profit of more than 1 billion euro. "The divestments have saved Deutsche Bank," said Konrad Becker at Merck Finck.

A positive aspect will also be that the bank will not have to make any goodwill write-downs.

Excluding these special effects, analysts expect to see only slight net growth for Germany's biggest bank. Georg Kanders at WestLB expects operating profit to decline by 57% from the first quarter of 2001 to 320 million euro. This does not include the goodwill write-downs, which in the first quarter of last year totaled 200 million euro. Under U.S. GAAP rules, they no longer have to be accounted for.

Analysts said they expected Deutsche's risk provisions to be high but that they would remain below the 556 million euro booked for the fourth quarter. They also forecast that cost-cutting measures will have made an impact and investment banking will show a strong result. "It will be better than in each quarter of last year," forecast Jeremy Sigee at Schroder Salomon Smith Barney.

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