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Deutsche Bank profit misses, hit by legal charges

Thomas Lohnes | Getty Images

Deutsche Bank pledged to cut risky assets from its balance sheet in response to regulatory concerns, as quarterly profit missed expectations, hit by a 630 million euro ($834.97 million) hike in litigation reserves.

Deutsche Bank posted a second quarter pre-tax profit of 792 million euros, well below the 1.3 billion euros forecast by analysts in a Reuters poll.

On Tuesday, Deutsche Bank shares closed around 3.9 percent lower.

The flagship lender's quarterly earnings stands in sharp contrast to peers. So far this reporting season, investment banking rivals like Morgan Stanley, Goldman Sachs, JPMorgan Chase & Co, and Bank of America Corp have beat analysts' profit expectations, thanks largely to strength in trading and underwriting.

(Read More: Deutsche Bank 'Horribly Undercapitalized': US Regulator)

The bank identified 250 billion euros worth of assets to cut in an effort to meet new bank safety rules. "We are committed to further reducing balance sheet in a manner that enables us to meet requirements on leverage ratio," Co-chief executive Juergen Fitschen said in a statement.

Deutsche said it will seek to achieve a leverage ratio of 3 percent under more stringent bank safety rules after regulators questioned the bank's ability to absorb financial shocks in a crisis.

Although Germany's flagship lender raised capital in April, one of the top U.S. regulators, Thomas Hoenig, Federal Deposit Insurance Corp Vice Chairman, last month called Deutsche Bank "horribly undercapitalized."

(Read More: Deutsche Bank Resists Pressure to Scale Back Its Global Ambition)

Hoenig said that although Deutsche Bank looks well capitalized when measured by Basel III global capital rules it looked weak when you look at the bank's leverage ratio.

To gauge a bank's ability to withstand a crisis, the leverage ratio - which compares a bank's shareholder equity to its total assets without using risk weightings - is more appropriate, Hoenig said.

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