Deutsche Bank's investment bank posted forecast-beating record quarterly earnings, adding credibility to the lender's ambitious targets even as Wall Street faces a regulatory and legal hurricane.
Deutsche's corporate banking and securities division, which posted 2.59 billion euros ($3.45 billion) in pretax profit, accounted for the lion's share of 2.79 billion in group pretax earnings, mirroring blowout gains at U.S. peers like Morgan Stanley .
Analysts polled by Reuters had estimated that Germany's biggest lender would earn 1.99 billion euros in pretax profit in the quarter ended in March, a rise of almost 10 percent from the year-earlier period.
Deutsche's earnings benefited from strong results in debt trading and the absence of markdowns in areas such as leveraged loans, boosting the chances of 62-year-old Swiss Chief Executive Josef Ackermann to hit ambitious profit targets next year.
The first impression is really good. Deutsche Bank is above consensus both before and after taxes. In addition, the loan loss provisions fell significantly, which is a very good sign, said Merck Finck analyst Konrad Becker.
Deutsche Bank shares had been indicated to open almost 2 percent higher, but reversed early gains to trade 1.1 percent lower at 54.76 euros by 3:21 a.m. ET.
The economic environment clearly stabilized in the first quarter 2010, but is not without remaining vulnerability, Ackermann said in a statement.
IN THE CROSSHAIRS
Investment banks boosted earnings last year in part thanks to government measures including short selling bans on financial stocks, looser collateral rules, and fiscal stimulus measures.
But the sector is in the crosshairs of politicians and regulators who want to curtail banks' risk taking activities in a bid to make the financial system safer.
In its first quarter report, the bank said it faced a U.S. class-action lawsuit over mortgage-related securities it helped arrange.
Frankfurt-based Deutsche Bank said its Tier 1 capital ratio slipped to 11.2 percent at the end of March from 12.6 percent at the end of 2009 as it absorbed acquisitions such as wealth manager Sal. Oppenheim.
Deutsche Bank, which posted a 50 percent rise in first quarter net profit of 1.77 billion euros and revenues of 9 billion, reiterated it aims to achieve 10 billion in pretax profit at the group level next year.
Deutsche hopes to boost earnings by benefiting from an expansion into growth markets, such as Asia, and from its ability to win market share in the fallout from the financial crisis that has left many competitors weakened.
To reach its 2011 targets, the bank will need some economic tailwinds, said Merck Finck's Becker.
(Reporting by Edward Taylor, additional reporting by Angelika Gruber; Editing by Hans Peters)