Less Subprime Exposure Eases Deutsche Bank Loss
Germany's Deutsche Bank reported better-than-expected fourth-quarter earnings Thursday, with smaller quarterly writedowns related to credit and subprime losses.
The bank also confirmed its target for full-year operating profit.
"The target confirmation signals the bank is confident that 2008 earnings won't be hurt by continued high writedowns," Konrad Becker, analyst at Merck Finck, said in a research note.
Deutsche Bank has so far been hurt substantially less than its peers in the financial crisis, Becker added.
One of the few banks to emerge unscathed from the crisis which has overpowered Wall Street powerhouse Citigroup and Swiss rival UBS, Deutsche also proposed raising its dividend by an eighth to 4.50 euros.
Traditionally the motor of Deutsche Bank's business, investment banking stuttered with pretax profits in the final three months of the year of 447 million euros ($655 million) -- down more than 50 percent.
Deutsche's overall quarterly net profit of almost 1 billion euros was roughly half of what it made a year earlier but still slightly above market expectations.
Chief Executive Josef Ackermann also stood by his "vision" of making a pretax profit of 8.4 billion euros in 2008 -- almost as good as the record 8.7 billion euros in 2007.
Investors applauded news that Deutsche would make writedowns of less than 50 million euros in leveraged finance -- and none linked to subprime -- sending the shares up sharply in trading before the German market opens.
The shares of Deutsche Bank closed 0.4 percent higher, having fallen in recent weeks amid
rumors that the group was on the brink of a profit warning.
Having dodged the subprime bullet, Ackermann has repeatedly warned that the question now is how Deutsche prospers in the post-crash market.
The Frankfurt-based bank has, for example, made record group profits on the back of its debt trading and origination business.
But problems with debt bundled into complicated packets was at the root of the credit crisis and this has turned off investors who now prefer safer assets such as gold.
Revenues, for example, from sales and trading of debt -- one of Deutsche's most lucrative money spinners -- fell 10 percent in the fourth quarter to 1.6 billion euros.
This was due to weaker trading of asset-backed securities, which have fallen out of favor with investors in the wake of the credit crash triggered by rising defaults on U.S. subprime mortgages.
"We expect conditions to remain challenging in 2008," Ackermann said on Thursday.
"Uncertainties in the macro-economic environment are likely to affect capital markets-related businesses."
Ackermann has taken centre stage in a tour of German media where he called on rivals to own up to subprime skeletons.
His credibility would have suffered had the bank discovered major damage from the credit market chaos after he repeatedly said that writedowns in the third quarter had closed the subprime chapter for Deutsche.
- Reuters contributed to this report