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Deutsche Bank Calms Jittery Markets

Stellar second-quarter earnings calm fears of contagion from the subprime crisis, but repercussions could still be felt down the line

Deutsche Bank (DB) helped ease fears that the subprime loan crisis could spread to Europe when it reported second-quarter earnings Aug. 1 that beat expectations. The Frankfurt-based bank said net profit rose 31%, to $2.5 billion, on sales of $12 billion. The bank's Sales & Trading unit was the star performer, with sales rising 89% from a year earlier, to $1.9 billion. "The numbers were excellent, there's very little to criticize," says Andreas Weese, an analyst at Unicredit Markets & Investment Banking in Munich.

Deutsche Bank's Frankfurt-traded stock lost a little over two euros to close at €98.80 on Aug. 1. That was better than other banks, however, and followed a three-point rise on July 31.

Earlier in the week, German midsize lender IKB Deutsche Industriebank provoked nervousness in financial markets when the bank disclosed it could suffer billions of losses from exposure to U.S. credit. However, Deutsche Bank seems to have done a good job of protecting itself from similar contagion. Analyst Weese says he is not worried that Deutsche will face huge markdowns because of the subprime crisis.

However, long-term revenue of Deutsche Bank and other international banks could suffer if there is less liquidity in markets and trading by hedge funds cools. "They're a big customer group," Weese says.

Ewing is BusinessWeek's European regional editor.

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