Deutsche Bank profits fall as debt crisis bites

Deutsche Bank, Germany's biggest bank reported Thursday a bigger-than-expected drop in earnings at the end of last year as the eurozone sovereign debt crisis hurt business.

Deutsche Bank profits fall as debt crisis bites
Photo: DPA

The financial powerhouse said in a statement it booked net profit of €186 million ($245 million) in the fourth quarter.

After payments to minority shareholders, the bottom-line figure amounted to €147 million, down 76 percent year-on-year.

At a pre-tax level, Deutsche Bank was even in the red, with a loss of €351 million in the October-December period, but favourable tax effects pulled it back into the black.

The numbers disappointed investors and Deutsche Bank shares were the biggest losers on the Frankfurt stock exchange on Thursday, showing a drop of 1.37 percent in a generally firmer market.

The group explained that while its classic high-street banking business performed well, its investment banking activities were hit by the debt crisis.

“The fourth quarter featured continued market uncertainty and lack of investor appetite leading to subdued market activity,” it said.

“The European sovereign debt crisis had a particularly marked effect on activity levels in Europe, where Deutsche Bank has a substantial portion of its business.”

Revenues in the investment banking fell by 26 percent year-on-year in the October-December period, while revenues in the classic banking division were up 22 percent, thanks largely to the inclusion of Postbank, acquired in 2010.

Deutsche Bank said it raised its loan-loss provisions by a third to €540 million in the fourth quarter.

In addition, the bank took additional writedowns of €144 million against its holdings of Greek debt and also took a €380 million hit for litigation.

Taking 2011 as a whole, Deutsche Bank’s net profit jumped by 87 percent to a total €4.3 billion however, and overall revenues rose by 16 percent to €33.2 billion.

The increase in revenues came “mainly as a result of revenues from businesses acquired in 2010, namely from Postbank and, to a lesser extent, the private bank Sal. Oppenheim and the commercial banking activities acquired from ABN Amro in the Netherlands,” Deutsche Bank explained.

“Once again, Deutsche Bank has proved its ability to deliver substantial earnings in challenging conditions,” said chief executive Josef Ackermann, who is scheduled to step down at the end of May after 10 years at the helm.

“In 2011, our classic banking business produced record earnings, thus counterbalancing the impact of weak markets in investment banking. We also significantly strengthened our capital base, boosted our liquidity reserves and reinforced our funding position,” said the Swiss-born executive.

Deutsche Bank said it would pay a dividend of €0.75 per share for 2011, unchanged from the 2010 payout.


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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.