Deutsche Bank (DB) surprised investors Oct. 21 with better-than-expected profit for the third quarter, bolstering the bank's claim that it will emerge from the financial crisis stronger than European competitors. But, perhaps wary of continued economic risks and rising defaults by creditors, investors reacted coolly. Shares of Germany's largest bank closed down 2.4% in Frankfurt trading.

Frankfurt-based Deutsche said net earnings for the period were $2.1 billion, up from $619 million a year earlier, helped in part by tax credits. The preliminary earnings release, which included few details, comes two days after carmaker Daimler (DAI) also reported better-than-expected earnings. The reports by two of Germany's biggest and best-known companies provide further evidence that corporate earnings in Europe's largest economy are recovering.

While Daimler shares soared after its surprise earnings release Oct. 19, Deutsche Bank shares fell amid an overall decline in German stocks. Investors may worry that some bank customers won't be able to repay their loans, as the global financial crisis continues to take a toll on industry and employment rates. Andreas Pläsier, who follows Deutsche for M.M. Warburg Investment Research, says he regards the profit figure as positive even if investors were unimpressed. "Insolvencies are still a danger, but I believe [Deutsche Bank's] capital basis is strong enough and they can continue to report profits in coming quarters," Pläsier says. "There's no fundamental reason" for the share decline, he adds.

Didn't Need a Bailout The two-paragraph press release from the bank did not include any revenue figures or a breakdown by company division. Deutsche Bank said only that all units were profitable. Pretax profit was $1.9 billion, vs. $139 million a year earlier. Tax credits helped boost the net income figure, the bank said. In addition, the bank's Tier 1 capital ratio, a key measure of its financial health, was 11.7%, a comfortable level. The bank plans to release more detailed figures Oct. 29.

In the course of the global financial crisis Deutsche Bank had to write down the value of securities investments by billions of dollars. But the bank was able to absorb the losses without a direct government bailout. Chief Executive Josef Ackermann has argued that by maintaining its independence the bank will be in a position to gain market share against its battered competitors and acquire assets cheaply. On Oct. 20, for example, Deutsche said it had reached agreement with the Dutch government to acquire parts of ABN Amro's commercial banking operations in the Netherlands, becoming the fourth-largest provider of corporate and investment banking services in the country. "The ABN deal makes sense," Pläsier says.

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