No Joy For Deutsche Bank – US-FOREX.US
Once the straw that broke the camel’s back, investment banking has now been the saving grace of lenders like Banco Santander, Goldman Sachs and Credit Suisse, as it offset rising defaults amongst consumers and businesses. Not so for Deutsche Bank.Shares in the German bank tumbled 7% on Tuesday morning, as it set aside 1 billion euros in provisions for risky loans, well above the 650 million euro figure that analysts had been expecting.”The bulk of the increase is deriving from loans which have been reclassified under IAS39 and lie within the investment bank,” explained Konrad Becker, an analyst at Merck Finck Private Bankiers in Munich, Germany.
Deutsche Bank
said that over 400 million euros of those provisions were for unnamed two leverage-buyout loans it had issued. Under International Accounting Standards Board rules altered at the end of last year, the bank reclassified these from assets they would have to make write-downs on, to their loans and receivables category. “The market fears that these provision could lead to losses of 1 billion euros or so each in the following quarters,” said Becker.In addition to the provisions for the leveraged buyouts, the bank took 364 million euros in charges for real estate and severance pay costs, an impairment of 110 million euros at its RREEF alternative investments division-part of Deutsche Bank Asset Management-and 316 million euros on the financing they provided for the botched takeover of U.S. chemical firm Huntsman by private equity firm Apollo Management .
The investment banking business also disappointed on other fronts: though equity sales and trading revenues more than tripled from the first quarter of the year, its fixed-income business, which had been expected to steal the show, saw debt sales and trading revenues plunge 44% from the first quarter. “The number will be seen as disappointing after expectations ran very high and after the U.S. peers generally exceeded the first quarter levels in the second quarter,” said Nomura analyst Jon Peace. By way of expectation, Deutsche Bank told an analyst conference call that volumes had fallen across the businesses it focused on in fixed income, such as foreign exchange and commodities, but they had managed to maintain their market share. In addition, they were still de-risking their balance sheet, which was holding back revenues.Still, Deutsche Bank’s figures suggest that the resurgence in investment banking is far from as straightforward as the earnings from Goldman Sachs
, JP Morgan
and Credit Suisse
had suggested. It’s still a business capable of dishing out nasty surprises.