Deutsche Bank AG (DB) reported a third quarter 2010 net loss of €1.2 billion ($1.7 billion) or €1.75 per share, compared with a profit of €1.4 billion or €1.92 per share in the prior-year period, primarily reflecting the €2.3 billion in charges for the Deutsche Bank’s stake in Postbank and the related mandatory exchangeable bond. Excluding that charge, Deutsche Bank reported a net profit of €1.1 billion in the reported quarter.
Deutsche Bank had already cautioned in September about the charges tied with the consolidation of Postbank and the impact on the third quarter earnings. Additionally, the company experienced a decrease in client activity in the reported quarter.
Net revenues excluding the Postbank related charges were €7.3 billion, up 1.4% from €7.2 billion in the prior-year quarter. Including the Postbank related charges, net revenues in the reported quarter were €5.0 billion. Corporate Banking & Securities’ net revenues were €4.2 billion, down 4.5% from €4.4 billion in the prior year quarter while Sales & Trading revenues were €2.9 billion, down 3.3% from €3.0 billion in the prior year quarter.
Deutsche Bank reported a provision for credit losses of €362 million versus €243 million in the prior quarter and €544 million in the year-ago quarter. The results reflect the company’s efforts in reducing the risky assets’ exposure in its portfolio.
Deutsche Bank experienced an increase in its non-interest expenses, which were €5.7 billion in the reported quarter, up 5.5% from €5.4 billion in the year-ago quarter. The raise reflects an increase in expenses from acquisition-related activities, costs for strategic initiatives including IT investments, and foreign exchange movements.
Deutsche Bank’s capital ratios do not include the impact of the €10.2 billion capital raise that was completed on October 6, 2010. Excluding that impact, the company reported Tier 1 capital ratio of 11.5% at the end of the quarter versus 11.3% at the end of the prior quarter and 11.7% at the end of the year-ago quarter. Excluding hybrid instruments, core Tier 1 ratio was 7.6% at the end of the quarter, slightly up from 7.5% at the end of the prior quarter.
Competitors
On the other hand, Deutsche Bank’s peers such as Credit Suisse Group (CS) and UBS AG (UBS) have reported a drop in their investment banking revenues as a result of lower client activity. Last week, Credit Suisse reported a third quarter profit of 609 million Swiss francs ($633 million), compared with CHF 2.35 billion in the year-ago quarter. UBS AG reported a net profit of CHF 1.7 billion ($1.7 billion) compared with CHF 2.0 billion in the prior quarter and a loss of CHF 0.6 billion in the year-ago quarter.
Our Take
Deutsche Bank has adopted several strategic initiatives in the past quarters, including the repositioning of its core business, bolstering of capital levels, opportunistic acquisitions and investments in organic growth. Going forward, though we expect the company to post a growth in earnings, we think any significant improvement will be necessarily restrained by the tardy recovery of the overall economy.
DEUTSCHE BK AG (DB): Free Stock Analysis Report
Zacks Investment Research
