Deutsche Bank Less Confident of Profit Goal
Germany's biggest bank Deutsche Bank warned on Wednesday that credit market aftershocks could hit its 2008 profits, sending its shares down.
In its annual report the bank highlighted the hurdles it faces this year from disruptions in the markets for leveraged finance and structured credit, previously big money spinners that have ground to a halt as credit market turmoil spread.
Deutsche is aiming for pretax profit of 8.4 billion euros ($13.09 billion) this year but Chief Executive Josef Ackermann warned last month that 2008 would be "challenging for our capital-markets related business," adding he would give ample notice if Deutsche looked likely to miss its targets.
Analysts have been cutting their expectations for Deutsche Bank's earnings this year, with underlying pretax profit seen at 7.1 billion euros, according to the average of 15 forecasts compiled by Reuters Estimates.
"The pretax goal was already assumed as non-achievable," JP Morgan said in a note to clients. "We believe consensus has to come down further," it said, predicting pretax profit of 6.6 billion euros this year.
Deutsche said business had slowed in a weakening economy, especially in areas most directly affected by the credit crisis, such as leveraged finance for corporate takeovers, where it has over 36 billion euros of exposure and expects more writedowns.
"Compensating for these negative effects on our profitability through performance in our other businesses may not be feasible, particularly if assumptions for continuing, albeit slower, economic growth in 2008 are not correct and less favorable economic conditions prevail," it said.
"These circumstances would likely adversely affect our ability to achieve our pretax profitability objective," it said on Wednesday, days before the end of its first quarter.
Deutsche also detailed billions of euros in exposure to other risky investments such as residential and commercial mortgage-backed securities and other structured finance products.
JP Morgan said it had expected additional pretax writedowns of 4.5 billion euros in 2008 but was raising the figure.
"Based on the data given today, our mark-to-market impact is likely to increase by a few billion euros," it said.
Deutsche Bank said its business in corporate and investment banking, the areas most directly affected by financial market turmoil, was likely to be considerably lower in the near term.
However, volumes in foreign exchange and interest rate trading have been high because of market turbulence, brightening the outlook for its sales and trading business, it said.
Deutsche said it remained well positioned for growth over the long term, with its broad global presence benefiting from the expansion of capital markets and asset management in countries outside its home market.
Shares of Deutsche Bank fell 2 percent.