April 28 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest bank, returned to profit in the first quarter as a thaw in credit markets buoyed trading income at the investment bank.

The company fell 6.9 percent in Frankfurt trading, erasing more than half the gain of the past week, on concern about possible writedowns and as earnings from asset management and transaction banking missed analysts’ estimates.

“There may be further impairments in the second half, especially because markdowns on consumer loans and corporate finance were insufficient in my opinion,” said Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment, including shares of the Deutsche Bank.

Chief Executive Officer Josef Ackermann, who agreed yesterday to extend his contract by three years, said at a press conference that April was a “solid” month and the bank is “very optimistic” for 2009. Net income totaled 1.19 billion euros in the first quarter, compared with a loss of 131 million euros a year earlier.

Ackermann also said the bank will set aside more money than the 1.1 billion euros originally planned this year to cover possible loan defaults as the global economy worsens.

The stock declined 2.99 euros to 40.26 euros in Frankfurt. Deutsche Bank has gained 45 percent so far this year, making it the fourth-biggest gainer in the Bloomberg index of 65 European banks. The company has a market value of 25 billion euros.

Banks’ Capital

Citigroup Inc. and Bank of America Corp. fell after the Wall Street Journal said early results of the U.S. government’s stress tests show the companies may need additional capital. The report, citing unidentified people with knowledge of the matter, also weighed on Deutsche Bank, Roehmeyer said.

Ackermann has been investing in the so-called stable businesses of asset management and consumer banking to reduce dependence on investment banking, which generated about half of earnings in 2007. Those units faltered in the first quarter.

Pretax profit from global transaction banking fell 12 percent to 221 million euros, while the asset and wealth management business had a pretax loss of 173 million euros, compared with a profit of 188 million euros a year earlier. Analysts had forecast a profit. Earnings at the consumer bank fell 32 percent to 206 million euros.

Credit Markets

Deutsche Bank, which posted its first annual loss in more than 50 years in 2008, profited from increased sales of corporate bonds as the freeze in global credit markets showed signs of a thaw in the first quarter. Sales of corporate debt in Europe doubled from the same period in 2008, according to data compiled by Bloomberg.

Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup and JPMorgan Chase & Co. announced first-quarter results that beat analysts’ forecasts as trading revenue surged.

The investment-banking unit, led by Anshu Jain and Michael Cohrs, reported a 1.32 billion-euro pretax profit, helped by trading of bonds, currencies and commodities. The division, known as corporate banking and securities, had a record pretax loss of 5.77 billion euros in the last three months of 2008 as the worst financial crisis since the Great Depression pummeled bond and stock trading.

No State Aid

Net revenue from fixed-income sales and trading more than doubled in the quarter to 3.76 billion euros. Equities sales and trading declined 63 percent to 275 million euros, below expectations, according to Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets.

The German bank booked 1 billion euros in markdowns in the first quarter, including 841 million euros in provisions for bond insurers. Deutsche Bank has made more than 10 billion euros in markdowns since the outbreak of the U.S. subprime mortgage crisis in 2007. Zurich-based UBS AG, which reported a first- quarter loss of almost 2 billion francs, according to data compiled by Bloomberg.

The world’s biggest financial companies have booked more than $1.3 trillion in writedowns and credit-related losses since the beginning of the U.S. subprime mortgage crisis in 2007, forcing them to raise $1.1 trillion euros in capital from government and investors, according to Bloomberg data.

‘Caution and Vigilance’

Deutsche Bank has repeatedly said it doesn’t need to raise capital from the state or investors and has no plan to tap Germany’s 480 billion-euro bank-rescue fund. Commerzbank AG, Germany’s second-largest bank, is getting 18.2 billion euros from the state fund.

Deutsche Bank said late yesterday that Ackermann, 61, agreed to a request from the bank’s supervisory board to remain CEO until the annual general meeting in 2013. The Swiss-born executive had been scheduled to step down in May 2010.

“Looking forward, we see continued challenges, but also opportunities, in our business environment,” Ackermann said in a letter to shareholders today. “Nevertheless, continued caution and vigilance will be essential.”

The company remains “well capitalized,” and doesn’t plan any big acquisitions, Ackermann said at the press conference. He’s committed to fulfilling his extended contract and said all the members of the management board told him they will stay at the bank.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; Jann Bettinga in Frankfurt at jbettinga@bloomberg.net

Last Updated: April 28, 2009 11:51 EDT