Fixed-income record boosts Deutsche Bank

Fixed-income record boosts Deutsche Bank

By Ivar Simensen in Frankfurt

Published: November 2 2006 02:00 | Last updated: November 2 2006 02:00

Deutsche Bank, Germany's biggest bank, outperformed its Swiss rival UBS in the third quarter, boosted by rising revenues in its fixed-income business.

Higher revenues from debt and derivatives instruments offset falling income from its smaller equities business, although not enough to avoid a modest decline in third-quarter pre-tax profits.

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Revenues fell 3 per cent to €6.4bn (£4.3bn) in the three months to the end of September, while pre-tax profits fell 5.3 per cent from last year to €1.8bn.

The earnings were in line with forecasts and came as a relief to investors after UBS on Tuesday blamed tough market conditions for weaker-than-expected profits.

There had been concern in the market that Deutsche Bank, which relies more heavily on trading and investment banking, could have suffered too.

But Josef Ackermann, chief executive, told the Financial Times he had adopted a cautious stance and it had paid off. "We were quite sceptical about the market at the start of the third quarter. July and August were very challenging months, but we took a cautious approach and that was proved to be correct."

The bank's fixed-income business once again stood out as the star performer, with revenues rising 8 per cent to €2bn, a record amount for the quarter. Revenues were driven by particularly strong sales of structured credit and interest rate instruments.

But a weak performance by the equity proprietary trading desk, which invests the bank's own money in the stock market, dragged down revenues from equity trading.

Revenues from the equity "prop" desk were "marginally positive" for the quarter, the bank said, and the decline accounted for most of the 32 per cent drop in equity revenues to €700m. Prop trading has been very volatile this year.

In the private client and asset management business, which includes retail banking and fund investments, revenues fell 4 per cent to €2.1bn.

The strength in fixed income helped the bank generate a return on equity before tax of 26 per cent in the quarter and 32 per cent in the first nine months of the year, above its target of more than 25 per cent through the business cycle.

Mr Ackermann gave an upbeat view of current market conditions. "The corporate pipeline is strong [and] global financial markets remain robust," he said.

Shares in Deutsche Bank rose 0.3 per cent to €98.85.