Deutsche Bank Disappoints With a Slide Into the Red

Deutsche Bank yesterday demonstrated the strains on the German banking system with the surprise admission that it made a loss in the third quarter.

Germany's biggest bank had been expected to scrape a profit for the period and quickly attempted to reassure shareholders that it would "weather the current storm successfully".

"With only two more months to go in the year, we are confident that we will be able to report a satisfying full-year for 2002 which will demonstrate the resilience of our business model even in this gloomy environment," said the chairman, Josef Ackermann.

His comments appeared to provide some comfort. At the end of the day Deutsche's shares were trading 1% higher in Frankfurt at 43.80 euros after losing up to 5% in earlier reaction to the loss of 181m euro (£114m). The loss compared with a 363m euros profit in the same period last year.

One rival bank, HVB, has already announced a third quarter loss while Commerzbank has warned it might finish the year in the red.

Deutsche would have managed to remain in profit had it not been for a decision to set aside 200m euros to cover loans which might turn sour in the months ahead. The bank said it was taking the special measures because of the "prevailing credit environment".

The total provision for losses rose almost five times to 790m euros.

This was partly a result of loans made to troubled telecoms companies and also due to the difficulties being faced by a large number of German companies in the economic downturn.

Even before announcing the surprise loss in the three months to the end of September, the bank had taken measures to cut costs. About 10,000 jobs have already been lost this year with a further 4,000 earmarked for removal by the end of 2003.

Deutsche insisted that the reduction in its cost base had "more than offset the decline in underlying revenues" for the first nine months of 2002.

Overall, the banking group is still in profit for the nine months.

However, the corporate and investment banking division, which accounts for the bulk of Deutsche's workforce in the City of London, made a third quarter loss of 238m euros in "difficult market conditions".