Deutsche Bank to Write Down Nearly $4 Billion
Deutsche Bank more than doubled writedowns in the wake of the global credit crisis, casting a pall over the prospects for the bank that had been seen as little affected by the melt-down.
Warning investors on Tuesday that conditions had deteriorated dramatically in recent weeks, Chief Executive Josef Ackermann said the bank would write down 2.5 billion euros ($3.9 billion) in the first quarter on the value of loans it has committed to as well as other investments.
The news was overshadowed by rival UBS, which unveiled $19 billion of additional writedowns on U.S. property and related assets, pushing it $12 billion into the red in the first quarter and forcing it into a fresh hunt for funds.
Deutsche Bank, the country's biggest financier, had been seen as one of the winners in the crisis that fatally wounded rival Bear Stearns and toppled other Wall Street titans.
But as conditions in global markets worsen, the bank is looking increasingly vulnerable.
The new write-down is equivalent to more than a third of its 2007 net profit and more than all the markdowns the bank made last year.
Last week, it warned that aftershocks could hit its 2008 profits. "Conditions have become significantly more challenging during the last few weeks," it said on Tuesday.
Deutsche is facing hurdles in, for example, leveraged finance and structured credit. Formerly a big money spinner, this market has ground to a halt as credit market turmoil spread.
Germany's biggest listed bank said that its capital base was still strong and that it expected its Tier 1 ratio -- a key measure of financial health -- to stay between 8 and 9 percent.
This makes a capital increase unlikely.
Deutsche Bank's stock price closed 3.9 percent higher at 74.48 euros.
Nonetheless, Deutsche Bank's news was a surprise to some.
"We had expected first-quarter write-downs of 1.5 billion euros on the leveraged buyout portfolio, but not on commercial property," said Olaf Kayser, an analyst at LBBW. "This means that Deutsche will probably report a first-quarter loss."
Others voiced worry about the uncertain months ahead.
"The writedowns are one thing. But the other issue which is at least as important is how their earnings develop," said Dieter Ewald, a fund manager with Deutsche shareholder Frankfurt Trust.
"The problem areas now are exactly those which were the big money spinners in the past. Those areas such as securitization, for example, are simply no longer there. The profit outlook must be reduced and that worries me. I find it hard to believe they can hit their profit goal."
Most of the first-quarter writedowns come from Deutsche Bank's commitments to lend money to customers such as private equity investors and companies carrying out acquisitions.
The bank would normally farm these loans out to other banks, but it has become harder to sell on such debt after a credit squeeze that began with a wave of U.S. mortgage defaults. It has to write down the value of these loans to reflect this.