Deutsche Bank curbs subprime losses to post record profit

Deutsche Bank curbs subprime losses to post record profit
AFP
AFP - 14 minutes ago

FRANKFURT (AFP) - Deutsche Bank, Germany's top lender, said Thursday it had stemmed losses from the US subprime mortgage debacle and made a record profit last year, putting it in a strong position for growth in 2008.

The bank posted net profit of 6.5 billion euros (9.5 billion dollars) for 2007 after avoiding more large write-downs stemming from the collapse of the US market for high-risk home loans in the fourth quarter.

The 2007 outcome represented a gain of seven percent on the 2006 performance, Deutsche Bank said in a statement.

"We had no net write-downs related to sub-prime, CDO or RMBS exposures" in the fourth quarter, chairman Josef Ackermann said in the statement.

He was referring to collateralised debt obligations and residential mortgage-backed securities, the complex financial instruments backed by home loans on which borrowers defaulted in large numbers last year, sparking a global credit crunch.

"We put up a good fight," Ackermann told a press conference.

For 2008, the bank reaffirmed its pre-tax profit target of 8.4 billion euros, saying that "notwithstanding short-term uncertainties, the longer-term trends shaping our industry are moving in our direction."

Shares in the bank rose 1.64 percent to 76.23 euros in midday Frankfurt trading while the DAX index was down 0.96 percent.

In the third quarter of last year, Deutsche Bank had taken charges of 2.2 billion euros to cover losses linked to the subprime crisis and posted a loss of 837 million euros as a result on its trading income.

But Ackermann said Thursday "those trading businesses in which we reported losses in the third quarter produced a positive result in the fourth quarter.

"In leveraged finance, where we had significant write-downs in the third quarter, net write-downs in the fourth quarter were less than 50 million euros."

The bank said 2007 pre-tax profit was up five percent to 8.7 billion euros.

Pre-tax return on equity (ROE), a key yardstick of profitability, slipped however to 29 percent from 33 percent a year earlier.

Deutsche Bank said it had taken provisions for credit losses of 612 million euros last year, compared to 298 million in 2006.

In the turbulent fourth quarter of 2007, net profit was one billion euros, down 47 percent from the same period a year earlier when the bank had benefited from tax credits owing to changes in German law.

Pre-tax profit in the three months was off 25 percent at 1.4 billion euros.

Corporate and investment banking turned in a fourth quarter net profit of 4.5 billion euros, "essentially unchanged" on a 12-month basis, and a full-year profit of 19.1 billion euros, for an increase of two percent.

Merck Finck analyst Konrad Becker said: "Under the current circumstances that is a good result -- especially when comparing it to that of some of Deutsche Bank's competitors."

The private client and wealth managment division showed a three percent gain in fourth quarter profit to 2.5 billion euros and a full-year increase of nine percent to 10.1 billion euros.

Fourth quarter ROE declined to 18 percent from 29 percent one year earlier.

Becker said the results were better than expected, particularly considering the market situation at the end of last year, and stressed that the confirmed 2008 outlook signalled strong confidence.

Ackermann said Deutsche Bank "had a good chance to emerge stronger from a difficult period for the financial sector," during which some major US and European rivals suffered massive subprime related losses.

"Something went haywire in the financial system," he told reporters.

The bank now planned to develop its activities in emerging markets, while remaining "open to complementary acquisitions" in its core activities.

Ackermann said his group could hold talks on buying shares in the coveted German semi-public Postbank that might be sold this year.

"We are interested," he said amid speculation that Postbank's parent company Deutsche Post could sell a part of its 50 percent plus one share holding this year.

Postbank shares showed a gain of 4.04 percent to 59.30 euros following the comments.

But Ackermann added: "We are not interested in Societe Generale, we want to neither buy it or merge with it."

The French bank has suffered losses of almost seven billion dollars owing to the financial crisis and unauthorised deals alleged to have been made by a junior trader, Jerome Kerviel, and has been identified as a possible takeover target.