Deutsche Bank Q2 profit up 16 percent, debt trading steady

Deutsche Bank reported a 16 percent year-on-year increase in quarterly pretax income to 917 million euros ($1.23 billion) as net revenue from debt trading held steady, defying a downturn seen by its U.S.-based rivals.

Deutsche bank posted 1.8 billion euros in net revenue in its important debt trading operations, part of its investment bank, while rivals saw a 9 percent decline on average in the quarter.

Investment banks faced a grim second quarter for revenue, hit by subdued client activity, low interest rates and by shrinking and restructuring of their businesses.

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"For me, the pleasant surprise was debt sales and trading, and the costs line," said Bankhaus Lampe analyst Neil Smith.

"Sales and trading were better than I expected, at flat year-on-year, compared with the negative 10-15 (percent) we've seen with some banks year-on-year. Before the U.S. banks reported, expectations had been as bad as minus 20-25 (percent)."

Deutsche Bank also topped up reserves for future litigation to 2.2 billion euros from a previous 1.8 billion. Deutsche, which faces an array of investigations that includes the Libor benchmark rate scandal, has already paid more than 5 billion euros over the past two years in settlements and fines.

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"There is significant uncertainty as to the timing and size of potential impacts. Accordingly, actual litigation costs for the balance of fiscal year 2014 are unpredictable," Deutsche Bank said in a presentation.

Deutsche Bank has come under heavy fire from U.S. authorities in recent weeks, with regulators slamming the bank for shoddy financial reporting, weak technology and inadequate auditing and oversight.

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Deutsche Bank shares have fallen around 20 percent so far this year compared to a 1 percent rise for the STOXX index of European banking rivals.

Deutsche Bank had been expected to post pretax profit of 590 million euros, according to the average result of a Reuters poll where the 10 sample estimates spanned a wide range from a 694 million euro loss to a 1.1 billion euros gain.

Its common equity tier 1 ratio rose to 11.5 percent at the end of the quarter following an 8.5 billion euro capital hike in June, which the bank was forced to do as the cost of fines, litigation and restructuring eroded results.

Ralph Orlowski | Bloomberg via Getty Images