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Deutsche Bank Beats Capital Adequacy Goal Shares Rise


Deutsche Bank AG, Europe’s biggest bank by assets, posted a fourth-quarter loss that exceeded estimates after the company eliminated more than 1,400 jobs and set aside 1 billion euros ($1.35 billion) for legal expenses.

The loss of 2.17 billion euros, the biggest in four years, was about eight times larger than the consensus analyst forecast. It compared with a profit of 147 million euros in the year-earlier period.

The loss “reflects a number of decisions we took to position Deutsche Bank,” Jain said in the earnings statement. “We’ve galvanized Deutsche Bank around the achievement of our capital targets.”

Deutsche Bank was little changed at 37.15 euros by 9:44 a.m. in Frankfurt trading. The bank’s shares have lagged behind rivals, climbing 15 percent over the past year compared with an increase of 23 percent for the benchmark Stoxx 600 Banks Index.

Non-interest expenses climbed to 10 billion euros from 6.7 billion euros in the fourth quarter of 2011. Deutsche Bank also said it had a 1.9 billion euro impairment of goodwill and other intangible assets.

Investment Bank

The investment bank had a pretax loss of 548 million euros in the fourth quarter, the company said. Analysts had expected a profit of 359 million euros.

“Various exceptional items arising from restructuring costs and impairment charges” hurt fourth-quarter earnings, said Amit Goel, an analyst at Credit Suisse Group AG who has an underperform rating on the stock.

Deutsche Bank had eliminated 1,400 of 1,500 positions slated to be cut at the investment bank and related support areas by the end of December, Chief Financial Officer Stefan Krause said.

The firm formed a unit last year to wind down and sell 125 billion euros of assets including loans, securitized products and a Las Vegas casino to release capital.

Capital Levels

Deutsche Bank said its core Tier 1 capital ratio, a measure of financial strength, stood at 8 percent on Dec. 31 under Basel III rules. That exceeded the bank’s forecast for a reading of 7.2 percent. Jain said he expects a ratio of 8.5 percent at the end of the first quarter.

Jain and Fitschen pledged in September that they will increase the capital ratio to more than 10 percent by the end of 2015. The bank’s biggest competitors will reach similar levels months or years sooner, according to their forecasts.

While the improving economic environment may temper concern over Deutsche Bank’s capital position, the risk of costs arising from litigation and stricter bank regulation will still weigh on investor sentiment, Goel said.

“Investors will continue asking whether the bank’s capital cushion is too thin to avoid a capital increase, should conditions deteriorate,” he said.

Bond Trading

Jain and Fitschen are reducing pay, eliminating almost 2,000 jobs and combined Deutsche Bank’s asset and wealth management divisions to help increase after-tax return on equity, a measure of profitability, to more than 12 percent by the end of 2015 from 8 percent in 2011.

Sales and trading revenue at the investment bank rose to 1.9 billion euros in the three months through December compared with 1.8 billion euros in the same period a year previously, Deutsche Bank said.

Revenue from trading fixed income, currencies and commodities at the four largest U.S. investment banks climbed a combined 39 percent annually to $8.82 billion in the three months to December, data compiled by Bloomberg Industries show.

Deutsche Bank had a 10.7 percent share of fixed income trading volumes last year, the biggest globally, Greenwich Associates said in a Jan. 14 study. Barclays Plc had the second- largest share with 9.8 percent, JPMorgan Chase & Co. was third with 8.8 percent and Citigroup Inc. fourth with 8.1 percent, according to the study.

“The key question for me is their capital position as they are lagging peers here,” said Christian Hamann, an analyst at Hamburger Sparkasse, a Hamburg-based savings bank. “Deutsche, unlike banks like UBS, wants to stay strong in investment banking. Whether that is a winning strategy will depend on how regulation goes and if markets stay friendly.”

(Source: Bloomberg)