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BANK

Deutsche Bank drops 2008 targets after posting Q1 loss

Germany's biggest bank, Deutsche Bank, dropped earnings targets for 2008 after posting its first quarterly loss in five years on Tuesday as a result of the global credit squeeze, writes AFP's Laure Fillon.

Deutsche Bank drops 2008 targets after posting Q1 loss
The global credit crunch hit Deutsche Bank. Photo: DPA

Financial director Anthony di Iorio told an analyst conference call the financial crisis had made it impossible to provide an accurate forecast for the full year.

“These are very uncertain times, the markets are unpredictable,” he replied when pressed to confirm the bank’s outlook for pretax profit of €8.4 billion ($13.1 million).

Di Iorio added that due to the current market turmoil, Deutsche Bank could not give a forecast for its full-year results.

The bank posted a first quarter net loss excluding minority holdings of €131 million ($205 million), compared with a profit of €2.12 billion in the same period a year earlier.

Its pretax result fell to a loss of €254 million from a profit of €3.16 billion.

Deutsche Bank took write-downs of €2.7 billion after initially appearing to have escaped the worst of a financial crisis that followed the collapse of the US market for high risk, or subprime, mortgages in mid-2007.

Chairman Josef Ackermann said in a statement as saying that “in the first quarter of this year, financial market conditions were the most difficult in recent memory.

“In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began. Inevitably, this left its mark on Deutsche Bank’s results.”

The bank said it had managed to offset the losses in part with €854 million in gains from the sale of shares in the German auto manufacturer Daimler, insurer

Allianz and industrial gas group Linde.

Without these gains, the net loss would have climbed to €1.1 billion.

Deutsche Bank had already warned it would be hard to hit its 2008 profit target owing to turmoil that has shaken the banking sector.

On April 1, Deutsche Bank said its lucrative investment banking unit had taken a serious hit from the US subprime turbulence, which has threatened several German banks with bankruptcy.

First-quarter results were undercut by €1.77 billion in mark-downs on leveraged loans and loan commitments, plus €885 million for commercial real estate loans and residential mortgage-backed securities.

In all, the charges came to €2.7 billion, higher than the April 1 forecast of about €2.5 billion.

Di Iorio also said the bank had sold around €1 billion worth of loans provided to finance leveraged buy-outs since the end of the first quarter.

International media had reported recently that Deutsche Bank was preparing to sell up to $20 billion worth of such loans.

Meanwhile, Ackermann stressed that the bank was “well positioned to emerge stronger than ever from the crisis.

“We are equally determined to meet near-term challenges and to take advantage of longer-term opportunities,” he added.

A breakdown of the results showed that the Corporate and Investment Bank unit, normally a strong contributor, saw revenues plunge 77 percent to €1.5 billion.

Earnings from retail banking operations were stable at €2.5 billion.

Shares in the bank shed 0.47 percent to €76.41 in midday Frankfurt trade while the Dax index of leading shares was down 0.57 percent overall.

Analysts said the results were better than the market had expected, but a local trader nonetheless commented that they still looked “pretty bad” and predicted they would put pressure on the bank’s shares all day.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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