by Aurelia End
FRANKFURT, July 30 (AFP) - Deutsche Bank, the biggest German bank, disappointed markets Friday with lackluster second-quarter results, hit by currency fluctuations and a difficult bond trading environment.
Pre-tax income reached 1.16 billion euros (1.40 billion dollars), up from 1.09 billion euros or 14.6 percent on the year. But the figure marked a 30-percent drop on the sizzling first quarter.
Net income rose 14.6 percent to 656 million euros -- both figures at the lower end of market expectations.
The news let down traders and Deutsche Bank shares dropped about three percent during the early morning on the news before recovering slightly.
Analysts polled by AFP and its financial news arm AFX had forecast pre-tax income in a range of 1.026-1.435 billion euros and net income of 610-875 million euros.
The German bank thus underperformed France's third-largest bank, Societe Generale, which had posted net profits of 749 million euros.
Deutsche Bank said net income had been hit by 93 million euros of tax charges on capital gains, required under US GAAP accounting standards. Under German law, the bank has been exempt from paying capital gains tax on the sale of shareholdings in other companies.
Total net revenues fell to 5.24 billion euros, mainly due to the effects of currency movements, the impact of business deconsolidations and "very challenging" market conditions in convertible bonds trading, the bank said.
"In the Corporate and Investment Bank, revenues were substantially lower in convertibles trading, reflecting difficult market conditions," CEO Josef Ackermann said in a statement.
"We have set ourselves clear and ambitious goals, and we will do everything we can to reach them regardless of challenging (economic) conditions," Ackermann added, without referring directly to what these targets are.
Chief Financial Officer Clemens Boersig reiterated during a conference with analysts that the bank was counting on achieving pre-tax return on equity of 25 percent for the whole of 2005. This ratio -- closely followed by analysts -- reached 21 percent during the first quarter.
Fund management revenues in the asset management business suffered from lower performance fee payments from clients due to difficult market conditions in parts of continental Europe.
Market "corrections" also impacted the bank's hedge fund operations, it said.
With compensation expenses -- mostly severance packages and performance-based payments -- 312 million euros lower year-on-year, non-interest expenses declined nine percent to 4.1 billion euros, the lowest level since the bank's conversion to US GAAP in 2001.
Provisions for loan losses declined by 83 million euros to 155 million euros, which was in line with consensus and reflecting the bank's commitment to reduce the value of problem loans.
Analysts and traders said they had hoped for more out of the blue-chip company.
"Cost-cutting could not compensate for the sharper-than-expected drop in (overall) revenues," said HVB analyst Andreas Weese.
However, Landesbank Rheinland-Pfalz analyst Olaf Kayser was far more upbeat.
"The figures were in line with my expectations," Kayser said. "The share is very cheap. I don't see any reason to change my forecasts and still forecast full-year net profit of three billion euros."