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Market turmoil pushes Deutsche Bank into the red

MNB

Deutsche Bank made its first quarterly loss in five years as the cost of the global financial crisis mounted for Germany's biggest bank.

Unveiling further writedowns of €2.7 billion ($4.2 billion), the bank said it had made a pretax loss of €254 million in the first three months of 2008. This compared to a more than €3 billion pretax profit a year earlier.

The result would have been worse had the bank not cashed in investments in companies such as carmaker Daimler worth €854 million.

Germany's biggest bank had been seen as one of the winners in the crisis that fatally wounded rival Bear Stearns and toppled other Wall Street titans.

But as conditions in global markets worsen, it is looking increasingly vulnerable. These losses are the first for the bank since those in the aftermath of the dot-com bubble.

The latest write-downs are equivalent to more than a third of its 2007 net profit and more than all the markdowns it made last year. The total bill is now €5 billion net of fees earned and hedges.

“In the first quarter of this year, the financial market conditions were the most difficult in recent memory,” chief executive Josef Ackermann said in a statement.

“In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began,” he added.

Many investors are now worried that market ructions will upset its day-to-day business.

This was already evident in the first three months of the year when lower trading in debt products, for example, saw its investment bank's revenues dive to €880 million from €6.1 billion in Q1 of 2007.

Deutsche is facing hurdles in, for example, leveraged finance and structured credit. Formerly a big money spinner, this market has ground to a halt as market turmoil spread.

Most of the first-quarter writedowns come from Deutsche's commitments to lend money to customers such as private equity investors and companies carrying out acquisitions.

The bank would normally farm these loans out to other banks, but it has become harder to sell on debt after a credit squeeze that began with a wave of US mortgage defaults. It has to write down the value of these loans to reflect this.

Deutsche said that its exposure to leveraged finance at the end of the first quarter was €33.1 billion. (Reuters)

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