Deutsche Bank's quarterly earnings rebounded from last year's record losses, helped by a one-off tax gain, as tighter regulations cloud the outlook for itself and European rivals.
Germany's biggest lender on Thursday reported a €1.3 billion net profit in the fourth quarter. That beat market forecasts of €770 million and dampened speculation about a possible capital increase.
The bottom line was flattered by a €554 million tax gain and the pretax profit of €397 million in corporate banking and securities showed investment banking was not as strong as in previous quarters.
JP Morgan analysts noted that Deutsche's investment banking “performance is weakish to US peers.” Goldman Sachs posted record profit on the back of an investment banking windfall last month.
The investment bank will continue to be the main driver of earnings going forward, the bank said, adding that the trading result in January had been “very good.”
Deutsche Bank said it paid0 €11.3 billion to staff last year, up 18% from 2008.
Chief Executive Josef Ackermann on Thursday reiterated calls for self restraint on bonus payments, even as he remains one of the industry's staunchest defenders of Wall-Street-style payouts.
He said he felt the need to “start thinking about some form of moderation or restraint,” adding bankers were struggling to find consensus on proposals.
Deutsche became the first major bank to put a figure on the costs of a UK bonus tax, booking a €225 million one-off expense in the latest quarter. The lender's compensation ratio rose to 42.5% from 39.3% in the third quarter.
“Pretax profit was clearly weak due to weak trading income,” DZ Bank analyst Matthias Duerr said in a note, adding that a stronger capital base had diminished chances of Deutsche needing a capital increase.
Deutsche bank's results came as Santander, the euro zone's largest bank, beat profit forecasts as diversification away from a tough domestic market into fast-growing areas like Brazil paid off and it kept a lid on bad debt provisioning.
Citing potential risks lurking in Deutsche's structured credit portfolio, the JP Morgan analysts said they preferred Swiss banks Credit Suisse and UBS over Deutsche Bank.
Deutsche bank said pretax income rose to €756 million in the fourth quarter from a €6.2 billion loss a year earlier and versus analysts' forecasts of €1.06 billion profit in a Reuters poll.
The Frankfurt-based bank also said its tier 1 capital ratio had improved to 12.6% as it prepares to absorb acquisitions such as wealth manager Sal. Oppenheim.
Ackermann acknowledged that the crisis had rattled the flagship lender, saying that “effects of the recent crisis will take time to work through” even while projecting a financial markets recovery and stabilization.
Ackermann warned against being “lulled in to a false state of security at the start of the year. The recovery is fragile and by no means self-sustaining, and it comes with a number of risks.”
He said the bank has eliminated proprietary credit trading and reduced proprietary trading in equity and equity derivatives by 90%.
This comes as US President Barack Obama aims to ban big banks from trading for their own account -- rather than on behalf of customers -- to help shore up the financial system.
Greater constraints on banks on both sides of the Atlantic have emerged as the sector's hot-button topic for this year.
Provisions for credit losses of €560 million in the fourth quarter lagged analysts' expectations and compared with €591 million a year earlier, but were up from €544 million in the third quarter.
Deutsche said it did not need acquisitions in most areas Ackermann told Reuters Insider Television the lender would consider bolt-on buys.
In 2009 Deutsche Bank posted a pretax profit of €5.2 billion and a net profit of €5 billion, recovering from a pretax loss of €5.7 billion and net loss of €4.8 billion in 2008, its worst year for earnings.
That was enough for it to propose a higher dividend of €0.75 per share, up from €0.5 in 2008. (Reuters)