Deutsche Bank posts historic loss

Deutsche Bank, Germany's largest bank, on Thursday posted its first annual loss since World War II owing to a catastrophic fourth quarter but vowed to survive the global financial crisis.

Deutsche Bank posts historic loss
Photo: DPA

The bank said it had made a net loss of €3.9 billion ($5.0 billion) in 2008, a figure that reached €4.8 billion in the fourth quarter alone. In 2007, Deutsche Bank had reported a record profit of €6.5 billion.

“Operating conditions in the (fourth) quarter were completely unprecedented, and exposed some weaknesses in our business model,” a statement quoted Deutsche Bank chairman Josef Ackermann as saying.

He acknowledged being “very disappointed” at the quarterly figures but said that “since the trust and support of our shareholders is critical for us, we recommend a dividend for the year 2008 of 50 cents per share.”

That is well below the €4.50 per share dividend paid in 2007 however, and the lack of a detailed outlook for 2009 worried investors, who drove the bank’s share price down by 4.19 percent to €20.35 in morning Frankfurt trading. The DAX index of leading shares was 1.14 percent lower overall. In opening trades the share price had fallen by 9.6 percent.

“The only positive aspect so far is that the bank didn’t announce a capital hike, as some might have feared,” Dow Jones Newswires quoted a trader as saying.

The bank’s shares would fall further if it did not provide an outlook at a press conference scheduled later in the day, he predicted. Deutsche Bank’s annual results were first announced on January 14, and Ackermann stressed Thursday that “we are convinced that Deutsche Bank will emerge successfully from the current crisis.”

The bank managed to increase its core capital ratio from 8.6 percent of total assets at the end of 2007 to 10.1 percent at the end of last year, the statement said.

The so-called Tier 1 ratio is a measure of financial strength and is being closely watched by analysts for indications of how well equipped banks are to cope with the current market crisis.

Deutsche Bank also took provisions for credit losses worth a total €1.1 billion, an increase of 76 percent from the previous year.

Ackermann said he remained committed to the bank’s business model, which is focused on investment banking, a lucrative field in which Deutsche Bank is one of the global leaders. But the sector has suffered sustained turmoil since mid 2007.

“In investment banking, we are market leaders in areas which have continued to perform well throughout the crisis,” he stressed. But the bank was “repositioning our platform in some core businesses,” the chairman acknowledged.

For the full year 2008, Deutsche Bank revised the total value of its assets lower by €7.0 billion, more than three times the 2007 write-downs of €2.3 billion. In the fourth quarter alone, asset write-downs amounted to €5.3 billion.


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.


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.