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Financial Market Crisis Catches Up With Deutsche Bank

Asset write-downs and the global slump in financial markets have been blamed for Deutsche Bank's first quarterly net loss in five years. Germany's largest bank reported a net loss of 131 million euros.

Deutsche Banklogo

Deutsche Bank has, until now, escaped relatively unscathed from the current crisis

Germany's biggest bank reported a net loss of 131 million euros ($205 million) during the first three months of the year, dramatically reversing a 2.12-billion-euro-profit for the same period of 2007, according to data released Tuesday, April 29.

Pretax earnings fell to a loss of 254 million euros from a profit of 3.16 billion euros, it added.

The bank's results were weighed down by 1.77 billion euros in mark-downs on leveraged loans and loan commitments and 885 million euros in mark-downs on commercial real estate loans and residential mortgage-backed securities.

Overall, the charges came to 2.7 billion euros, slightly higher than previously forecast. Deutsche had announced on April 1 that it anticipated first-quarter mark-downs of about 2.5 billion euros.

Deutsche has already warned that its 8.4-billion-euro profit target could be at risk as a result of additional write-downs and volatile financial markets.

Pressure makes its mark on Deutsche

Deutsche Bank's Josef Ackermann

Reason to be cheerful?Deutsche's Josef Ackermann

"In the first quarter of this year, the financial market conditions were the most difficult in recent memory," said Deutsche Bank head Josef Ackermann announcing the results. "In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began."

The international banking sector has been in turmoil since the United States market for high risk, or subprime, mortgages collapsed in mid 2007. Deutsche Bank has faired better than many of its rivals in recent months as the fallout from the crisis has engulfed banks around the world notably in Switzerland and on Wall Street.

Despite enjoying a first-quarter earnings boost driven by the 854 million euros generated by the sale of stakes in companies including German carmaker Daimler AG and insurer Allianz AG, and by a 113-million-euro tax gain, the financial turmoil resulting from the subprime upheaval has eventually hit Deutsche Bank's key investment banking business.

Announcing its results, the bank said its investment banking operations posted a 1.6 billion-euro pretax loss during the first three months of the year.

At the same time, the bank said revenue from market trading and debt dived by 61 percent to 1.3 billion euros.

IKB posts massive loss in further blow

Board members of Deutsche Industriebank AG, IKB, Reinhard Grzesik, Dieter Glueder, supervisory board chairman Ulrich Hartmann, CEO Guenther Braeuning and board member Claus Momburg in silhouette

These are dark times for the board of the IKB

In another blow to the German banking sector, the ailing IKB Deutsche Industriebank announced it had 1 billion euros in the first half of its financial year on the back of numerous write-downs that led to its bailout last year.

The German lender, one of those badly hit by the US subprime crisis, did not provide figures for its six-month results a year earlier. The current result was for the period from April 1 to Sept. 30, 2007.

Despite the half-year loss, IKB confirmed Tuesday it that it expects to earn 200 million euros in the 2008 financial year.

IKB, which lends to small and medium-sized German companies, has been battered by the subprime crisis since last summer, when its chief executive resigned.

In March, German stock market operator Deutsche Boerse suspended trading in IKB shares after the bank revealed that it did not expect to post a significant profit for the foreseeable future.

The decision came after an auction of most of IKB's 3 billion euro portfolio of risky securities had been suspended due to a lack of satisfactory bids.

In February, the German government -- which owns a 38-percent stake through the KfW, a state-owned bank set up after World War II to help fund reconstruction -- stepped in to prop up IKB, putting up 1 billion euros of a 1.5-billion-euro rescue package to prevent the crisis spreading to the rest of the country's banking sector.

On top of all that, IKB was hit by an investigation into possible insider trading earlier this month.

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