FT.com / Companies / Financial services - Deutsche Bank shares rise in spite of losses

FT.com / Companies / Financial services - Deutsche Bank shares rise in spite of losses

Deutsche Bank shares rise in spite of losses
By Chris Hughes and Gillian Tett in London and Ivar Simensen in Frankfurt

Published: October 3 2007 10:08 | Last updated: October 3 2007 10:08

Deutsche Bank on Wednesday became the latest big investment bank to see its shares rise after revealing it had suffered billions of dollars worth of losses in the recent credit turmoil.

In spite of announcing that its investment banking unit would post a third-quarter pre-tax loss of up to €350m, after €2.2bn ($3.1bn) of charges relating to leveraged loans, structured credit products and trading, shares in the German bank closed up 2 per cent as investors welcomed clarification of the extent of its losses.

However, Deutsche also said third-quarter net profits for the group would top €1.4bn, boosted by tax credits. It also reiterated its pre-tax profits target for 2008. However, Jeremy Sigee, analyst at Citi, said the announcement represented a profit warning.

Josef Ackermann, chairman of Deutsche’s management board, said the group saw “substantial opportunities in investment banking after this period of correction”.

The comments were made ahead of an investor conference hosted by Merrill Lynch in London, where Brady Dougan, chief executive of Credit Suisse, echoed Mr Ackermann’s optimism by predicting that his bank could gain market share from rivals once the credit squeeze eased.

Deutsche’s clarification came in the wake of Monday’s profit warnings from rivals Citigroup, UBS and Credit Suisse. These have given investors confidence that the financial cost of the credit crisis is becoming measurable after weeks of uncertainty.

UBS gained 1.4 per cent Wednesday, closing at SFr67.35, while Credit Suisse closed up 1.1 per cent at SFr81.55. US peers including Merrill Lynch and JPMorgan Chase were also up in early trading.

The global sector is up 2.5 per cent this week.

The rally continued against a backdrop of continued weak sentiment in the money markets, in spite of the vast volume of liquidity that central banks have pumped into the system in recent weeks.

Huw van Steenis, analyst at Morgan Stanley, said the banks’ disclosure, coupled with expectations of rate cuts, was attracting long-only investors to increase their exposure to banks. This was forcing hedge funds to close short positions.

“The market views the writedowns at the investment banks cathartically,” he said. “UBS’s profit warning was an inflection point for European banks.”

Robert Law, banks analyst at Lehman Brothers, said: “The capital market banks have taken marks on their exposure and that builds confidence.

“One of the biggest issues with the sector has been that people haven’t really known where these exposures are, and how much they are.”

But others questioned the market’s newfound confidence.

Steve Russell, investment director at Ruffer, the London-based asset manager, said: “The worse the news is, the more the market goes up. As uncertainty is reduced, it should make sense to attempt some bottom-fishing – but we think it is far too early to do so.

“The real issue is that a whole area of [capital markets] banking business is now closed off for a long time. There’s a big elephant of a credit crunch around the corner and we haven’t seen anyone adjust their earnings forecasts for that.”

Crispin Odey, founder of Odey Asset Management, the London-based hedge fund, said hedge funds that had bet that banks’ shares would continue to fall were having a ”really painful” week. “Everyone involved in the interbank market can’t believe how strong the equity markets are,” he said.


Copyright The Financial Times Limited 2007