Deutsche Bank May Boost Quarterly Profit on Jain’s Investment Bank Unit
Deutsche Bank May Increase Quarterly Profit
Hannelore Foerster/Bloomberg
The headquarters of Deutsche Bank AG stand in Frankfurt, Germany.
The headquarters of Deutsche Bank AG stand in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg
Deutsche Bank Corporate and Investment Bank Head Anshu Jain
Ramin Talaie/Bloomberg
Deutsche Bank AG corporate and investment banking head Anshu Jain.
Deutsche Bank AG corporate and investment banking head Anshu Jain. Photographer: Ramin Talaie/Bloomberg
Deutsche Bank AG (DBK) may say second- quarter profit rose, driven by the investment banking unit run by Anshu Jain, as speculation mounts that he may be in line to co-lead Germany’s biggest lender.
Net income probably rose to 1.3 billion euros ($1.9 billion) from 1.16 billion euros in the same period a year earlier, according to the average estimate of 11 analysts surveyed by Bloomberg. Profit was 2.06 billion euros in the first quarter.
Deutsche Bank, which has begun the search for a successor to Chief Executive Officer Josef Ackermann, is counting on consumer banking acquisitions and gains from investment banking to meet a goal of 10 billion euros in operating pretax profit this year. The Frankfurt-based lender stands to lose more than 300 million euros from writedowns on Greek debt after European leaders forged a 159 billion-euro aid plan for Greece that leaves private investors footing part of the bill, analysts at Sanford C. Bernstein & Co. led by Dirk Hoffmann-Becking said in a note last week.
“They’ve been able to increase market share in investment banking over the last few quarters,” Olaf Kayser, a Landesbank Baden-Wuerttemberg analyst based in Mainz, said. The second quarter “was pretty challenging for trading as volatility and uncertainty over what will happen in the European debt crisis cut trading revenue.”
‘Good Path’
Deutsche Bank has fallen 1 percent in Frankfurt trading this year, valuing the company at 36 billion euros. That’s less than the 7.5 percent decrease for the Stoxx 600 Banks Index, of which it is a member.
Pretax profit at the corporate banking and securities unit is projected to rise to 1.18 billion euros in the second quarter from 779 million euros a year earlier, while analysts are forecasting earnings from asset and wealth management will gain to 165 million euros from 65 million euros. Profit at the private and business clients division may rise to 475 million euros from 233 million euros.
“While other banks had problems, as you could see in recent figures from U.S. firms, Deutsche Bank was able to win clients and is on a good path,” said Kayser, who recommends investors buy Deutsche Bank shares.
The German bank leapfrogged Barclays Plc to first place in international bond underwriter rankings this year and boosted its market share to 7.3 percent in the second quarter from 5.9 percent in the same period a year earlier, data compiled by Bloomberg show. The lender underwrote 5.1 percent of global equity offerings in the three months through June, up from 3.8 percent in the second quarter of 2010, according to the data.
Stamp Out
Euro-area leaders announced the new aid package for Greece on July 21 in an effort to stamp out the 21-month sovereign bond crisis. Banks pledged to participate in a bond exchange and debt buyback program as part of the deal and to provide financing of 54 billion euros to Greece from mid-2011 to mid-2014, for a total of 135 billion euros through the end of 2020, the Institute of International Finance said.
“The focus this quarter will be on the macroeconomic and political issues,” said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods Ltd. “It is unavoidable that the company’s fixed-income business was affected” by risk aversion amid Europe’s sovereign debt crisis.
Revenue from equity sales and trading was projected to fall to 800 million euros in the second quarter from 943 million euros in the first, while analysts are estimating fixed-income sales and trading revenue of 2.69 billion euros in the period, down from 3.65 billion euros in the first three months of 2011.
Goldman Sachs
Goldman Sachs Group Inc., the U.S. bank that makes most of its money from trading, reported second-quarter profit that fell short of analysts’ estimates as fixed-income revenue plunged 63 percent from the first quarter. JPMorgan Chase & Co.’s investment bank reported a smaller-than-expected 17 percent decline in trading revenue on July 14, while the same business at Citigroup Inc. fell 21 percent.
“I’m looking for Deutsche Bank to post some good numbers, but to say everything is fine would be wrong,” said Christopher Wheeler, an analyst with Mediobanca SpA in London who is “neutral” on the stock. “The second half of the year will be challenging, with trading volumes likely to remain low and a lack of confidence undermining issuance and advisory activity.”
German public auditors may recommend that banks and insurers write down the value of their holdings in Greek government bonds in second-quarter earnings reports, Petra Wiedefeldt, a spokeswoman for the Institute of Public Auditors in Germany, said July 19.
Sovereign Risk
Christian Streckert, a spokesman for Frankfurt-based Deutsche Bank, declined to comment on possible writedowns ahead of the company’s July 26 earnings release.
Deutsche Bank had net sovereign risks related to Greece of 1.6 billion euros, 8 billion euros to Italy and 2.28 billion euros to Spain as of Dec. 31, the Frankfurt-based company said in March.
The German lender is likely to meet its plan to reach 10 billion euros in pretax profit this year, said Norddeutsche Landesbank Girozentrale analyst Michael Seufert in Hanover, who recommends investors buy Deutsche Bank shares.
“The biggest challenge remains the uncertainty on the markets and among investors,” Seufert said. “Sustained risk aversion in the second half of the year could negatively affect the business volume in trading and cripple initial public offerings as well as merger and acquisition activities.”
Ackermann Succession
Deutsche Bank also faces speculation over the succession of Ackermann, 63. Supervisory board member Marlehn Thieme said in a July 12 interview that she urged him to become chairman and that she’s open to replacing him with a dual CEO structure.
The lender is considering making the India-born Jain, 48, co-CEO alongside a German-speaking management board member such as Juergen Fitschen, 62, to allay domestic doubts about Jain’s ability to fulfill the political role of leading the bank, people with knowledge of the matter said this month.
Chairman Clemens Boersig is ready to step down at the annual shareholder meeting next May if Ackermann accepts Jain and Fitschen as co-CEOs, Die Welt newspaper reported yesterday, without citing anyone.
“The succession issue is still in focus but it isn’t decisive,” said Seufert. “If Juergen Fitschen is named, that could just prolong the succession discussion because he is closing in on retirement and investors will wonder who will succeed him. Hugo Banziger or Stefan Krause might make better choices in that respect.”
Banziger, 55, is the chief risk officer, while Krause, 48, is Deutsche Bank’s finance chief.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
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