Deutsche Bank sidestepped the crisis in U.S. sub-prime mortgage lending to deliver the best
second-quarter profit in its history on the back of a strong performance from its trading arm.
Germany's flagship financial institution racked up almost a third more profit in the second quarter of the year -- 1.8 billion euros ($2.5 billion) -- and its chief executive told investors the business would continue to thrive even in the current rocky environment.
"Some areas of the credit markets may continue to experience turbulent conditions," said Josef Ackermann, referring to the crisis sparked by American homeowners not being able to pay their mortgages.
"Our business model ... is structured to deliver performance in the face of such challenges," he added.
But his words failed to fully calm the nerves of investors, jittery after a U.S. mortgage lender and two Australian funds became the latest casualties of a credit crunch rippling across the globe.
Deutsche Bank's shares were indicated down more than 2% in premarket trading despite applause from analysts. The overall German market was expected to open even further down.
Bumper Trading
Deutsche's net profit was as usual buoyed primarily by its buying and selling of debt and equity products.
Revenue in debt, at 2.9 billion euros, was almost one-fifth higher than the previous year. Sales and trading of equity generated revenue of 1.4 billion euros in the second quarter -- almost twice that of a year earlier.
Deutsche's investment banking arm, which includes the trading division, made a pretax profit of 2 billion euros -- almost 30% higher than a year ago and accounting for the lion's share of overall earnings.
"The numbers are extraordinarily good," said Georg Kanders, an analyst with WestLB. "And it is also good to see that not only investment banking has done well."
"Other areas such as retail banking and transaction banking -- which are the predictable and sustainable earners -- are better than expected."
The bumper result comes despite the sub-prime mortgage crisis that earlier this week forced an arm of the German government to mount a rescue of small-business lender IKB.
Default rates on mortgages to high-risk or sub-prime borrowers in the United States have been creeping up, following years of low interest rates and loosening credit standards.
This has led to problems for the banks doing the lending as well as those sharing the risk, culminating in the recent crisis.
Investors had been nervous that Deutsche could also be hit, worries that had sent its stock tumbling by as much as 10% over the past fortnight.
Instead of which, Germany's biggest listed bank saw its pretax profit approach 6 billion euros -- well on the way towards its goal for next year of 8.4 billion euros.