Deutsche Bank AG profit increases 72 percent

Quarterly earnings down from mounting costs in absorbing Bankers Trust

Financial institutions

February 17, 2000|By BLOOMBERG NEWS

FRANKFURT, Germany -- Deutsche Bank AG, Europe's largest bank, said yesterday that fourth-quarter profit rose 72 percent as trading income rebounded and it sold shares in Allianz AG. Earnings were held back by the cost of absorbing Bankers Trust.

Profit rose to 700 million euros ($687 million), or an indicated 1.2 euro per share, in the fourth quarter from 408 million, or 0.73 per share, a year earlier. Deutsche Bank spent 900 million euros last year integrating Bankers Trust and making the German bank's retail operation a separate unit.

"Costs stormed ahead," said Erwin Muthspiel, head of trading at SGZ-Bank. "They'll have to make sure that Bankers Trust doesn't turn into a millstone around their neck." Deutsche Bank shares were little changed.

Deutsche Bank bought Bankers Trust for $9 billion, aiming to build an investment bank to rival Goldman Sachs Group Inc. Though costs are mounting, Deutsche Bank stands to profit from a government plan to drop a tax on asset sales. That would enable the bank to sell stakes in companies like DaimlerChrysler AG and use the proceeds to build its main business.

Bankers Trust will help raise Deutsche Bank's pretax return on equity to 25 percent in 2001 from 19 percent in the first nine months of 1999, the German bank has forecast.

"They're on the way to reaching their forecasts, but whether they do so or not depends on capital market developments," said Georg Kanders, an analyst at WestLB in Dusseldorf. He has a "buy" rating for Deutsche Bank.

Deutsche Bank didn't give any information on how much it set aside for bad loans last year, nor did it detail how much interest it earned on its loans -- a key revenue component.

The bank ranked fifth in advising on mergers and acquisitions in Germany last year, counseling utilities Veba AG and RWE AG on the 1.15 billion euro sale of telephone company Otelo to Mannesmann AG in May.

Still, it's under attack on its home turf. U.S. investment banks Goldman Sachs, J. P. Morgan & Co., Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co. took the top four spots, according to Thomson Financial Securities Data.

Costs climbed a more-than-expected 55 percent in 1999 from 10.1 billion euros as the bank paid bonuses to stop key Bankers Trust staff defecting to rivals.

One-time expenditure last year included the costs of splitting its retail bank into a separate unit. Deutsche Bank 24, as the unit is known, said last month that it will spend 250 million euros as it cuts 6 percent of its staff, closes branches and expands its Internet services.

Full-year profit rose to 2.6 billion euros from 1.7 billion in 1998 as the bank softened the blow of rising costs with one-time gains. They included a tax-free gain of 576 million euros from hedging the Bankers Trust purchase price against swings in the euro's value and a pretax 1 billion euros from the sale of shares in Allianz, Europe's second-biggest insurer.

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