Deutsche Bank Q2 net profit up 67%

Deutsche Bank AG has reported a 67 percent rise in second-quarter net profit due to stronger corporate and investment banking and one-time charges that lowered the year-ago results. Shares slumped, however, due to write-downs and a cautious outlook.

The Frankfurt-based bank, Germany’s largest, said yesterday that net profit for the April-June period increased to €1.1 billion ($1.6 billion) compared with €645 million in the second quarter of 2008.

Revenues for the second quarter increased 46 percent to €7.9 billion from €5.4 billion in the second quarter of 2008, when revenues were hurt by €2.3 billion in write-downs on residential mortgage-backed securities and commercial real estate, among others.

The second quarter 2009 results beat expectations on sales and earnings but some investors took profits on the stock after the report was released. Shares closed down 11.4 percent to €46.09 in Frankfurt.

Markets also focused on the cautious outlook which rests on an overall turnaround in the global economy and the provisions for further writedowns.

Deutsche Bank said it absorbed €1.4 billion in charges during the quarter, mainly for provisions for credit losses or defaults and non-interest expenses, indicating the financial crisis’ effects aren’t totally over yet.

The bank said the specific provisions for credit losses included the corporate and investment bank division which booked €779 million in provisions and the private clients and asset management division which booked provisions of €221 million.

“The outlook for the remainder of 2009 is strongly influenced by progress in the global economy,” Josef Ackermann, the bank’s chief executive said in a statement.

“In an uncertain environment, Deutsche Bank is well prepared. We have taken good advantage of improved conditions on financial markets, but we have also reduced costs and balance sheet risks, and strengthened our capital and liquidity base, all of which leaves us well-placed to confront near-term challenges,” Ackermann said.

Ackermann added that the company has witnessed a stabilization of the world’s banking industry and financial markets, and that increased liquidity and lower volatility were contributing to the bank’s more profitable business performance.

The bank also announced Tuesday it would extend Ackermann’s contract for another three years until 2013.

“Over the next few years, we expect the ‘flight to quality’ to continue, allowing Deutsche Bank to gain share due to their higher credit quality, superior technology and greater international reach,” Bernstein Research analysts wrote in a recent research note.

Deutsche Bank said its corporate banking and securities revenues were up 110 percent to €4.6 billion for the quarter, driven predominantly by revenues in sales and trading.

Revenues in the corporate investments division were up 123 percent to €660 million. The corporate and investment bank saw revenues increase 84 percent to €5.3 billion.

Meanwhile, global transaction banking, asset and wealth management, private clients and asset management and private business clients divisions all saw their revenues decline.

Deutsche Bank said it made provisions for credit losses of €1 billion during the quarter compared with €135 million in the second quarter of 2008.

Total assets at the end of the quarter were down 18 percent on the year to €1.7 billion. They were 13 percent lower on a six-month basis.

The tier 1 capital ratio, a measure of a bank’s liquidity, was 11 percent at the end of the second quarter, compared with just over 10 percent at the end of the first quarter of 2009.

In the first six months of the year, the bank reported net income of €2.3 billion compared with €504 million in the January-June period of 2008, a 356 percent increase.

For the first six-months, the company reported group revenues of €15.2 billion compared with €10 billion in the January-June period of 2008, a 51 percent increase.

Deutsche Bank also released a statement later in the afternoon Tuesday acknowledging the “questionable methods” used by the bank’s corporate security department in four incidents going back as far as 1998 that raised legal concerns on issues including data protection.

“We regret what took place. Internal measures have been initiated to prevent similar incidents in the future,” the statement said, adding that the methods were not authorized by either the supervisory or the management board.

The bank announced earlier this month that two executives were fired over the allegations that Germany’s biggest bank spied on a supervisory board member and a shareholder, among others.

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