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Deutsche Bank disappoints
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October 26, 1999: 7:12 a.m. ET
Higher profits are below forecasts as analysts see costs 'out of control'
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LONDON (CNNfn) - Deutsche Bank posted higher nine-month results Tuesday that were below expectations, as analysts forecast a "crisis" in its costs related to the takeover of Bankers Trust and ongoing retail banking problems.
For the three-quarter period ended Sept. 30, net profit climbed 42.6 percent to 1.88 billion euros while operating earnings rose 40.1 percent to 2.56 billion. The consensus among analysts was for net earnings of 2 billion euros and an operating profit of 1.7 billion.
Earnings per share were 3.16 euros, up from 2.44 euros in the first three quarters of 1998.
Total expenses for the first nine months soared 41.8 percent to 10.4 billion euros from the same period last year, including a 45 percent jump in the third quarter.
Deutsche Bank attributed the surge to performance-related bonus payments in investment banking and to costs from the integration of Bankers Trust.
However, it had already taken an 800-million-euro charge for the Bankers' takeover. "You are looking at a bank with a cost base going out of control," said Adrian Pilz, banking analyst at Fox-Pitt Kelton in London.
Pilz said bonus costs are increasing 25 percent quarter-on-quarter. "This gives you an idea of the mentality going on inside this bank," he said. He also pointed to an 81 percent tax rate on the third-quarter earnings and extra provisions for Y2K compliance.
Net profit rose to 77 million euros ($82.4 million) in the third quarter, just 1 million higher than a year ago after extraordinary items are stripped out. Earnings per share dipped to 0.11 euro per share from 0.14 euro.
Deutsche Bank became the largest bank in the world in terms of assets after acquiring Bankers Trust earlier this year. It guaranteed hefty payments to top-level Bankers' staff to prevent mass defections following the takeover, though many, such as BT chief executive Frank Newman, quickly left the merged group.
Deutsche's total assets climbed to 835 billion euros at the end of September, keeping it ahead of Bank of Tokyo-Mitsubishi and Switzerland's UBS in the global top spot.
Capital market recovery
The recovery in global capital markets saw the restructured investment banking operation post improved results as commission income jumped 36 percent to 2.06 billion euros in the third quarter.
However, this was eclipsed by a recovery in profit from securities trading in the wake of losses racked up by Russia's financial crisis last August. Trading profits were up just over 1 billion euros in the three months ending in September compared with a loss of 115 million euros in the same period in 1998.
The bank's retail and private banking operations remained in profit but contributed a smaller share than in the same period last year.
Deutsche Bank had sought to merge its retail side with that of Germany's third-largest private bank, Dresdner Bank, but talks broke down last month.
Deutsche Bank has only a 5 percent market share in the German retail banking sector and the most expensive operation with a cost-income ratio of 83 percent.
Shares of the bank tumbled 2.5 percent in Frankfurt trading Tuesday morning.
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Deutsche Bank
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