By JACK EWING
Published: October 27, 2010
FRANKFURT — Deutsche Bank said Wednesday that it had lost money in the third quarter due to the costs of acquiring Germany’s largest retail bank, but the shares rose as its investment banking unit performed better than competitors.
Another European giant, BBVA, also reported a drop in earnings Wednesday as it continued to feel the effects of the ailing Spanish economy.
Deutsche Bank’s €2.3 billion, or $3.2 billion, charge connected to the takeover of Postbank contributed to an overall loss of €1.2 billion, which was slightly better than expectations. The bank had previously warned it would post a loss for the period, and analysts polled by Reuters had expected it to be around €1.33 billion. The bank reported a €1.38 billion net profit in the third quarter of 2009.
Like other big banks, Deutsche Bank felt the effects of slumping stock markets earlier this year. But a rebound in debt trading in late September compensated for a decline in equity trading and contributed to an 12 percent increase in profit from investment banking, to €1.1 billion.
“The third quarter results again prove the robustness of our recalibrated business model despite the difficult ongoing macroeconomic and market conditions,” Deutsche Bank’s chief executive Josef Ackermann said in a statement.
Deutsche Bank shares rose 1.6 percent in Frankfurt trading as its earnings compared favorably with rivals. The Swiss bank UBS said Tuesday that its investment banking unit lost 406 million Swiss francs, or $417 million, in the third quarter, overshadowing an overall profit of 1.66 billion francs. Credit Suisse last week reported a surprising profit drop.
“The Swiss banks disappointed, Deutsche didn’t disappoint,” said Jon Peace, a banking analyst at Nomura in London. He noted, though, that the performance of Deutsche Bank’s investment banking unit is merely average compared with global institutions.
BBVA became the latest Spanish bank to report a drop in earnings as government austerity measures weigh on economic growth. BBVA said that net profit in the third quarter fell 17 percent to €1.14 billion. The bank said, however, that the percentage of bad loans is declining. Its shares fell in early trading, but recovered to nearly even later in the day.
Deutsche Bank’s acquisition of Postbank would vastly expand its branch network and more than double the number of retail customers to 24 million. Ordinary depositors have become more valuable in the banking industry now that it is more costly for banks to raise funds on wholesale money markets.
“Our retail banking operation is vastly increasing its footprint in Germany, which will balance our earnings towards an even more stable business,” Mr. Ackermann said.
Earlier this month Deutsche Bank sold new shares to raise €10.2 billion, which it will use to complete the Postbank takeover and comply with regulations requiring banks to hold more capital in reserve.
The bank said its so-called core tier one capital ratio, a measure of financial strength, was 7.6 percent at the end of the quarter, up from 7.5 percent at the end of the second quarter. The figure does not include the new capital that Deutsche Bank raised.
Regulators from the world’s largest economies have proposed requiring banks to hold core tier one capital of at least 7 percent in order to absorb unexpected losses, but the rule would not take full effect until 2019.
Though Deutsche Bank complies with the new rules, investors may punish the company for being so close to the minimum, Mr. Peace of Nomura said. “With Deutsche being at the low end it is likely to trade at a discount,” he said, adding that investors are also unlikely to see big increases in dividends as the bank holds on to profits to strengthen its capital base.
Deutsche Bank warned earlier this month that it would take the write-down on the value of the 30 percent stake in Postbank that it already owned. Deutsche Bank has offered Postbank shareholders €25 a share for the rest of the bank.
The drop in earnings at Spanish banks has also started to trigger some management changes. Last week Bankinter surprised investors by announcing the resignation of its long-standing chief executive, Jaime Echegoyen, who is being replaced by the head of its insurance subsidiary, Maria Dolores Dancausa.
Raphael Minder contributed reporting from Barcelona.
This article has been revised to reflect the following correction:
Correction: October 27, 2010
An earlier headline for this article misstated the outcome for BBVA. It reported a drop in earnings, not a loss.
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