Deutsche Bank expects net profit to rise to more than $2 billion in the third quarter and is sticking to its 2008 targets, despite big hits from global credit market problems, it said Wednesday.
Shares in Germany's biggest bank jumped after it said quarterly net profit would be above 1.4 billion euros ($2 billion), despite charges of 700 million euros on its leveraged loan commitments and 1.5 billion euros on items such as structured credit products and mortgage-backed securities.
Investors had expected large write-downs after major rivals this week unveiled losses on many types of financial products linked to the U.S. market for risky mortgage loans.
Deutsche's revelation that robust earnings in other business areas and tax benefits would boost third quarter net profit, plus its upbeat assessment of business opportunities after the current correction ends, reassured the market.
"One would hope that this is Deutsche drawing a line under its losses," said Fox-Pitt, Kelton analyst David Williams.
Deutsche's shares rose as much as 2.8%, outpacing a 1% rise in European banking peers.
Its credit default swaps tightened one basis point to 36 basis points on the news.
"We stay the course and remain committed to our publicly stated financial targets for 2008, including pretax profits of 8.4 billion euros, assuming normally functioning markets," Chief Executive Josef Ackermann said in a statement.
"We see substantial opportunities in investment banking after this period of correction," he added.
Banks around the world have been hit hard by the fallout from rising delinquencies in the market for risky mortgages in the United States.
Even banks not directly exposed have seen lucrative markets for structured finance evaporate, forcing them to write down losses on investments they cannot sell.
Pressure on Deutsche Bank to say more about write-downs it was facing had mounted this week after Swiss bank UBS announced a shock third-quarter loss and Citigroup said profits were badly hit by the global credit crisis.
Ackermann publicly urged banks to be forthright about losses to help restore investor confidence in markets that have nearly dried up for some financial products, making it difficult for banks to judge the value of loans or securities on their books.
Deutsche Bank said last month it was not exposed to further deterioration of the U.S. subprime market but that it did have 29 billion euros of loans to sponsors in leveraged finance.
"The total markdowns at Deutsche Bank are higher than expected, less so from leveraged finance than from the structured credits side," said ABN AMRO analyst Kinner Lakhani.
"However, taking the cue from UBS, the markets are willing to believe that kitchen sinking allows these banks to move on with a clean sheet of paper," Lakhani said.
Sources familiar with the situation told Reuters last month that Deutsche Bank's profit may be hit by up to 1.7 billion euros when it revalued loans that dwindled in value in the wake of the global credit problems.
On Wednesday, Deutsche said it expected third-quarter pretax profit of 1.2 billion euros, but that tax credits and an extra boost from reform of Germany's company tax code would lift net profit to 1.4 billion from 1.25 billion in the year-ago quarter.