Deutsche Bank May Report First Loss in Five Years on Markdowns

Deutsche Bank May Report First Loss in Five Years on Markdowns


April 28 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, may report its first quarterly loss in five years after writing down the value of loans for leveraged buyouts and asset- backed securities by 2.5 billion euros ($3.9 billion).

The bank will probably post a first-quarter net loss of 174 million euros tomorrow, after a profit of 2.12 billion euros a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg.

Deutsche Bank sidestepped the worst of the subprime contagion because of early bets against the U.S. housing market. UBS AG, the largest Swiss bank, recorded almost 38 billion Swiss francs ($36.7 billion) of markdowns since July, while Credit Suisse Group last week posted its first loss since 2003 on 5.3 billion francs of writedowns in the first quarter.

``Deutsche Bank appears to have done better than its Swiss counterparts,'' said Thomas Koerfgen, a Frankfurt-based fund manager at SEB Asset Management, which oversees more than $15 billion, including Deutsche Bank shares. ``Good risk management and the push to expand retail banking and asset management are paying off.''

Deutsche Bank fell 12 percent in the last six months in Frankfurt trading, compared with a 19 percent drop in the 59- company Bloomberg Europe Banks and Financial Services Index.

The Frankfurt-based bank, run by Chief Executive Officer Josef Ackermann, said April 1 it would book about 2.5 billion euros in markdowns in the quarter, bringing total losses to 4.8 billion euros since the start of last year.

Writedowns, Capital Raisings

The world's biggest banks and securities firms have reported credit losses and writedowns of about $308 billion linked to the U.S. subprime meltdown, data compiled by Bloomberg show. UBS, Citigroup Inc. and Merrill Lynch & Co. are among banks that sought about $212 billion from investors to replenish capital.

``Even though we expect a weak quarter, Deutsche Bank should be able to get through the credit crisis relatively well, especially without the need for a capital increase,'' Andreas Weese, a Munich-based analyst at UniCredit SpA, who recommends investors buy the stock, said in a note.

UBS is seeking 15 billion francs from investors to repair its balance sheet after already receiving 13 billion francs last month from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor. The Zurich-based bank said last week that it will announce job cuts ``across the board'' at its securities unit in May and no longer plans to ``offer everything to everyone in investment banking.''

Leveraged Loans

Deutsche Bank's investment bank, run by Anshu Jain and Michael Cohrs, accounted for almost half of 2007 earnings and may report a pretax loss of 903 million euros for the first quarter, according to the analyst survey.

The bulk of first-quarter markdowns were likely made on 36.2 billion euros of leveraged loans held at the end of 2007, said Derek Chambers, an equity analyst at Standard & Poor's Equity Research in London. The loans accounted for the biggest chunk of unsold LBO debt worldwide, according to a BNP Paribas SA report this month.

Banks are taking advantage of an increase in the price of LBO loans this month to reduce the $95 billion overhang of debt on their books. Deutsche Bank is offering discounts of as much as 9 percent to sell loans financing the leveraged buyout of U.K. pharmacy chain Alliance Boots Ltd., three investors contacted by the bank to buy the debt said on April 25.

Consumer Banking

Ackermann, who has run the bank since 2002, expanded what he calls the ``stable businesses'' of consumer banking and asset management by purchasing German lenders Norisbank and Berliner Bank and Britain's Tilney Investment Management Ltd. Deutsche Bank has expressed interest in Deutsche Postbank AG, the country's biggest consumer lender by clients, and Citigroup's German consumer banking operations, if they were put up for sale.

``It is pursuing a sensible policy of diversification, but it remains highly exposed to developments in fixed-income trading,'' said Chambers.

Consumer banking profit probably declined 4.1 percent to 281 million euros in the quarter, while asset and wealth management earnings may have gained 11 percent to 208 million euros, according to the survey of analysts.

The German bank said last month its full-year forecast for pretax profit of 8.4 billion euros, which excludes one-time effects, is at risk, citing a slowdown in investment banking revenue and economic growth.

Deutsche Bank gets about half its profit from fixed-income, including asset-backed and other structured securities, according to JPMorgan Chase & Co. estimates. Many of these business areas have dried up because of the credit crunch.

BLOOMBERG