Deutsche Bank pretax profit rises as markets focus pays off
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[July 29, 2014]
By Thomas Atkins and Arno Schuetze
(Reuters) - Deutsche Bank AG's <DBKGn.DE> bid to become "last man
standing" in European investment banking is working, the bank said
on Tuesday, even as the threat intensifies of costly litigation and
Germany's flagship bank reported a 16 percent year-on-year increase
in quarterly pretax income, higher than expectations, as revenue
from its huge debt trading operations avoided the harsh downturn
that burdened its rivals.
But the specter of expensive legal action cast a shadow over the
results, with the bank booking 470 million euros ($631 million) in
litigation-related charges, lifting reserves for future litigation
to 2.2 billion euros.
Deutsche Bank faces a list of investigations ranging from
allegations of manipulating benchmark interest rates to unfairly
favoring some investors in off-market trading venues known as dark
pools. It has paid 5.6 billion euros over the past two years in
settlements and fines and expects to pay 3 billion more this year.
"The pipeline of problems is endless," said fund manager Helmut
Hipper at Union Investment, one of Deutsche Bank's top 15
shareholders. "Whether it's currencies, Libor, gold or silver
trading, Deutsche Bank has numerous legal risks. That makes things
difficult to predict and weighs on the Deutsche Bank share price."
The bank said on Tuesday it had received requests for information
from regulators related to high-frequency trading and had been named
as a defendant in class action complaints alleging violations of
U.S. securities laws related to high-frequency trading.
FINES AND SETTLEMENTS
With the threat looming of fines and settlement costs, as well as
European banking stress tests year, Germany's largest lender raised
8.5 billion euros in June to strengthen its balance sheet.
It has also come under fire from U.S. regulators for shoddy
financial reporting, weak technology and inadequate auditing and
oversight, which it is addressing in part by hiring 500 U.S. staff.
Investment bank earnings contributed the lion's share of pretax
income of 917 million euros, as revenue from debt trading held
steady, in contrast with downturns suffered by some rivals. Analysts
polled by Reuters had on average forecast a pretax profit of 590
million. "The market share gains we have seen in the second quarter
are very broad based," said co-Chief Executive Anshu Jain in a
conference call with analysts.
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Investment banks faced a grim second quarter for revenue, hit by
subdued client activity, low interest rates and by shrinking and
restructuring of their businesses.
But Deutsche Bank posted a steady 1.8 billion euros in net revenue
in debt trading operations, while rivals saw a 9 percent decline on
average. "For me, the pleasant surprise was debt sales and trading,
and the costs line," said Bankhaus Lampe analyst Neil Smith.
Deutsche Bank shares have fallen around 20 percent so far this year
versus a 1 percent rise in the STOXX Europe 600 index of European
banks <.SX7P>. On Tuesday they edged into positive territory, versus
a flat performance in the index.
The bank's common equity Tier 1 (CET1) ratio, a measure of balance
sheet strength, rose to 11.5 percent at the end of the quarter
following the 8.5 billion euro capital increase in June.
(1 U.S. dollar = 0.7445 euro)
(Additional reporting by Jonathan Gould; Editing by Mark Potter and
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