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By MARK LANDLER
Published: October 3, 2007
FRANKFURT, Oct. 3 — Deutsche Bank finally put a number on its losses from the home-lending crisis, saying today that it expected to write down $3.1 billion in loans and mortgage-backed assets.
Its disclosure — after two very public warnings from the bank about the effects of the market upheaval, and heavy write-downs by its peers, Citigroup and UBS — was not as dire as some analysts expected.
The losses will dampen Deutsche Bank's third-quarter net income, but including tax credits and the sale of its Wall Street office tower, the bank will actually exceed the results in the period a year earlier. It is still on track to achieve its goal of nearly $12 billion in pretax profit next year.
"Despite a challenging quarter for our investment banking franchise, our 'stable' businesses continue to perform well," the bank's chief executive, Josef Ackermann, said. "Therefore, we stay the course."
Mr. Ackermann has been one of Europe's most vocal bankers in warning about the fallout from the crisis that originated in the American subprime market. He also tipped off German regulators to a credit crisis at a smaller German bank, IKB Deutsche Industriebank.
As a result, investors were nervously awaiting numbers from Deutsche Bank, with some fearing that it would be especially hard hit. A $3.1 billion write-down is hardly trivial — market speculation last week had put the number closer to $2.4 billion — but next to the even bigger write-downs at Citigroup and UBS, Deutsche Bank's misery seemed manageable.
Shares of Deutsche Bank rose more than 2 percent in Frankfurt, on a quiet national holiday marking German reunification. Deutsche Bank pulled up other German banking stocks and reinforced hopes that Europe's financial system had weathered the worst of the crisis.
"There are some tentative signs that the market is beginning to stabilize, both in terms of credit and liquidity," said Simon Adamson, a banking analyst at CreditSights, an independent research firm in London.
"One of the biggest problems," he said, "has been the lack of transparency and the lack of disclosure — and we now have some."
Europe's banks are not out the woods yet. Two big French institutions, BNP Paribas and Société Générale, have yet to detail their losses in asset-backed securities; neither has Barclays of Britain. Analysts said smaller European banks might also produce further unwelcome news.
It is increasingly clear that the market turbulence — along with the record-setting euro — will hobble Europe's economic growth. In the last month alone, the euro has risen 4.2 percent against the dollar.
Given such a murky atmosphere, analysts expect the European Central Bank to leave interest rates unchanged at its meeting on Thursday in Vienna. Some said a rate increase is unlikely before the middle of 2008.
Early on, Deutsche Bank appeared to be a rare beneficiary of the subprime mess. It had profited by selling mortgage loans with derivative contracts that appreciated as the American housing market slumped.
The first inkling of trouble came last month, when Mr. Ackermann disclosed at a banking conference that the spreading crisis would harm the performance of Deutsche Bank's vast sales and trading, and corporate finance operations. The bank said it had 32 billion euros ($45 billion) worth of asset-backed securities, and 29 billion euros ($41 billion) of leveraged loans.
Mr. Ackermann appeared on German television, acknowledging that the country's banks had erred by expanding pell-mell into financial products that later proved risky. He urged all banks to disclose their exposure promptly and mark down troubled investments to their market value.
Deutsche Bank said today that it would write down 700 million euros in the value of its leveraged loan portfolio and 1.5 billion euros on the value of assets, including mortgage-backed securities.
"The charge they've taken on their leveraged loan book is less than people might have expected," Mr. Adamson said. "It looks like the sort of figures you'd expect from a bank involved in these businesses."
Deutsche Bank, he said, also appears to have less direct subprime exposure than UBS, which on Monday reported $19 billion worth of positions in subprime residential mortgage-backed assets.
The write-downs will push Deutsche Bank's usually profitable corporate banking and securities business into a loss in the third quarter, estimated at 250 million to 350 million euros.
As at UBS, the strength of its wealth-management business compensated for the red ink in investment banking. Unlike UBS, Deutsche Bank did not dismiss any senior executives or announce layoffs.
Indeed, UBS's spare-no-pain announcement on Monday may have eased the way for Deutsche Bank to deliver its bad news. "It is a significant decline in performance," Mr. Adamson said. "But because UBS's performance was even worse, it has taken the heat off Deutsche."
Published: October 3, 2007
FRANKFURT, Oct. 3 — Deutsche Bank finally put a number on its losses from the home-lending crisis, saying today that it expected to write down $3.1 billion in loans and mortgage-backed assets.
Its disclosure — after two very public warnings from the bank about the effects of the market upheaval, and heavy write-downs by its peers, Citigroup and UBS — was not as dire as some analysts expected.
The losses will dampen Deutsche Bank's third-quarter net income, but including tax credits and the sale of its Wall Street office tower, the bank will actually exceed the results in the period a year earlier. It is still on track to achieve its goal of nearly $12 billion in pretax profit next year.
"Despite a challenging quarter for our investment banking franchise, our 'stable' businesses continue to perform well," the bank's chief executive, Josef Ackermann, said. "Therefore, we stay the course."
Mr. Ackermann has been one of Europe's most vocal bankers in warning about the fallout from the crisis that originated in the American subprime market. He also tipped off German regulators to a credit crisis at a smaller German bank, IKB Deutsche Industriebank.
As a result, investors were nervously awaiting numbers from Deutsche Bank, with some fearing that it would be especially hard hit. A $3.1 billion write-down is hardly trivial — market speculation last week had put the number closer to $2.4 billion — but next to the even bigger write-downs at Citigroup and UBS, Deutsche Bank's misery seemed manageable.
Shares of Deutsche Bank rose more than 2 percent in Frankfurt, on a quiet national holiday marking German reunification. Deutsche Bank pulled up other German banking stocks and reinforced hopes that Europe's financial system had weathered the worst of the crisis.
"There are some tentative signs that the market is beginning to stabilize, both in terms of credit and liquidity," said Simon Adamson, a banking analyst at CreditSights, an independent research firm in London.
"One of the biggest problems," he said, "has been the lack of transparency and the lack of disclosure — and we now have some."
Europe's banks are not out the woods yet. Two big French institutions, BNP Paribas and Société Générale, have yet to detail their losses in asset-backed securities; neither has Barclays of Britain. Analysts said smaller European banks might also produce further unwelcome news.
It is increasingly clear that the market turbulence — along with the record-setting euro — will hobble Europe's economic growth. In the last month alone, the euro has risen 4.2 percent against the dollar.
Given such a murky atmosphere, analysts expect the European Central Bank to leave interest rates unchanged at its meeting on Thursday in Vienna. Some said a rate increase is unlikely before the middle of 2008.
Early on, Deutsche Bank appeared to be a rare beneficiary of the subprime mess. It had profited by selling mortgage loans with derivative contracts that appreciated as the American housing market slumped.
The first inkling of trouble came last month, when Mr. Ackermann disclosed at a banking conference that the spreading crisis would harm the performance of Deutsche Bank's vast sales and trading, and corporate finance operations. The bank said it had 32 billion euros ($45 billion) worth of asset-backed securities, and 29 billion euros ($41 billion) of leveraged loans.
Mr. Ackermann appeared on German television, acknowledging that the country's banks had erred by expanding pell-mell into financial products that later proved risky. He urged all banks to disclose their exposure promptly and mark down troubled investments to their market value.
Deutsche Bank said today that it would write down 700 million euros in the value of its leveraged loan portfolio and 1.5 billion euros on the value of assets, including mortgage-backed securities.
"The charge they've taken on their leveraged loan book is less than people might have expected," Mr. Adamson said. "It looks like the sort of figures you'd expect from a bank involved in these businesses."
Deutsche Bank, he said, also appears to have less direct subprime exposure than UBS, which on Monday reported $19 billion worth of positions in subprime residential mortgage-backed assets.
The write-downs will push Deutsche Bank's usually profitable corporate banking and securities business into a loss in the third quarter, estimated at 250 million to 350 million euros.
As at UBS, the strength of its wealth-management business compensated for the red ink in investment banking. Unlike UBS, Deutsche Bank did not dismiss any senior executives or announce layoffs.
Indeed, UBS's spare-no-pain announcement on Monday may have eased the way for Deutsche Bank to deliver its bad news. "It is a significant decline in performance," Mr. Adamson said. "But because UBS's performance was even worse, it has taken the heat off Deutsche."
I think it is a big deal but they say it is not for PR purposes.
