Deutsche Bank Q2 2010 Earnings Were $2.27 vs. $2.12 in Q2 2009, Matching Estimates

Increased investor uncertainty and higher market volatility led to 'lackluster' performance

Deutsche Bank, Germany's biggest bank, reported second-quarter net income of $1.55 billion (EUR 1.2 billion) versus $1.42 billion in second-quarter 2009, the Frankfurt-based company announced Tuesday, July 27. Diluted earnings per share were $2.27 versus $2.12 in the second quarter of 2009.

Overall quarterly revenue dropped from April to June during the European debt crisis to $9.3 billion from $10.3 billion a year ago. That was offset by fewer set-asides for bad loans in second-quarter 2009. Pre-tax return on average active equity was 15%; excluding significant gains and charges, it was 13%.

The report was in line with analysts' forecast for net income of EUR $1.5 billion, according to European equity analyst Matthew Clark of Keefe, Bruyette & Woods' London office.

Clark called Deutsche Bank's performance "lackluster" in a note written right after the earnings report was released. Clark commented that strength in global transaction banking and private and business clients was offset by unexpected write-downs.

"Investment bank revenue trends were below consensus, but in line with peers on an underlying basis," Clark said, noting that Deutsche Bank's 13% return on net asset value, while not its finest quarter, should keep investors interested in the stock.

Deutsche Bank (DB) stock opened at $69.17 and fell to around $68 per share in U.S. trading after the earnings release came out. In Frankfurt, DB shares rose strongly on the results.

"In a quarter which was characterized by increased investor uncertainty and higher market volatility, Deutsche Bank's investment banking business followed the industry-wide trend of weaker profitability," said Josef Ackermann, chairman of the management board, in the DB earnings release.

"That said, our leading franchise continues to gain market share while keeping strict risk and balance sheet discipline," Ackermann said. "In addition, performance within Private Client and Asset Management as well as Global Transaction Banking was very solid and partially showed improved profitability. The Private & Business Client segment delivered the best quarterly result since the peak of the financial crisis. This demonstrates the strength of our diversified business portfolio."

In Private & Business Clients, net revenues were $1.81 billion, slightly better than in the second quarter of 2009. Positive margin development led to record quarterly results in deposits. Higher revenues were also recorded in all remaining product categories with the exception of other products, where revenues were lower as a result of asset and liability management activities.

In Asset and Wealth Management, net revenues were $1.25 billion, up 57% versus the second quarter of 2009. The improvement included $192 million attributable to Sal. Oppenheim Group in Private Wealth Management, which was consolidated for the first time in the previous quarter. In addition, the second quarter performance reflected higher commissions and fee income mainly due to improved asset valuations in Asset Management, and an increase in asset based fees and client demand in the Private Wealth Management business.

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