EARNINGS PREVIEW: German Banks 1Q Hit By Crisis; Some Light
April 24 2009 - 12:52PM
Dow Jones News
TAKING THE PULSE: German banks' first-quarter results are likely
to show a continuing burden from painful asset mark-downs related
to the broadening global economic crisis. However, Deutsche Bank
AG's (DB) securities business should at least provide a glimmer of
hope, in line with some of its U.S. and Swiss peers who surprised
the market with better-than-expected first-quarter results,
particularly in fixed income.
In the first quarter, German bank M&A progressed with
Deutsche Bank taking a 25%-plus-one-share stake in Deutsche
Postbank AG (DPB.XE), and Commerzbank AG (CBK.XE) finalizing the
acquisition of Dresdner Bank from Allianz SE (AZ).
In order to finance the EUR4.7 billion Dresdner acquisition,
Commerzbank had to tap the German government's SoFFin financial
markets stabilization fund. It still awaits the European
Commission's final approval on the government's planned capital
support, which includes the government taking a 25%-plus-one-share
stake in Commerzbank and a EUR16.4 billion silent participation,
plus EUR15 billion in state guarantees.
COMPANIES TO WATCH:
---Deutsche Bank AG (DB)---(Tuesday April 28)
MARKET EXPECTATIONS:After Goldman Sachs (GS) and Credit Suisse's
(CS) upbeat first-quarter results and Deutsche Bank's positive
guidance, analysts expect to see some improvement at Germany's
largest listed bank by market value as well.
A Dow Jones Newswires poll of 15 analysts gave an average
first-quarter net profit forecast of EUR764 million, bouncing back
from a net loss of around EUR131 million in the same quarter a year
ago. The result should be helped by substantial improvements in the
bank's trading result net interest income.
"Deutsche Bank heavily advertised a strong start into 2009 and
after the good result of the U.S. banks, expectations for
first-quarter earnings are high," writes Kepler Capital Markets
analyst Dirk Becker.
In the bank's annual report, Chief Executive Josef Ackermann
said: "Deutsche Bank expects to return to profitability in 2009" if
"the global economy, financial markets, legal and regulatory
environment, and competitive environment develop as foreseen."
Citi Investment analysts noted that Deutsche Bank management
said the bank had EUR2.8 billion of revenue in January, a similar
trend in February and solid operating revenue in March.
MAIN FOCUS: Kepler's Becker expects the underlying result to be
strong "on the back of record new bond issuance and wider bid-ask
spreads in the fixed-income space." However, he also cautions that
"the bottom line might disappoint" as the results will be dragged
down by write-downs.
The bank's exposure to monoline insurers will likely require
further mark-downs following ratings downgrades of MBIA and Ambac
earlier this year. "Deutsche Bank has been far less aggressive than
its peers for value adjustments in this field and might have to
catch up now," Kepler's Becker writes. Keefe, Bruyette & Woods
analysts expect EUR1.2 billion quarterly mono-line related
write-downs. Weaker revenue from asset and wealth management,
impairments on infrastructure investments and further injections
into money-market funds could also hamper earnings, the analysts
write.
"We worry that underlying client activity levels remain subdued
in many areas of the business, and some of the first-quarter
positives may prove temporary," Citi Investment analysts said.
Comments about the bank's capitalization will be closely
watched. Deutsche Bank has repeatedly said it's on track for its
target of a Basel II Tier 1 capital ratio of around 10%, without
needing to raise external capital. But analysts such as from Sal.
Oppenheim perceive Goldman Sachs' recent announcement of a capital
increase - despite a Tier 1 ratio of around 13.4% after the payback
of $10 billion government capital - as suggesting enhanced pressure
for higher capital-ratio standards for the entire sector.
---Deutsche Postbank (DPB.XE)---(Tuesday May 5)
MARKET EXPECTATIONS:Deutsche Postbank AG (DPB.XE) CEO Wolfgang
Klein told the annual general meeting this week that the bank
expects an after-tax profit for the first quarter, helped by a
three-digit-million euros tax boost, but also due to cutting risk
positions. Klein also said the bank expects further impairments
this year, the bulk of which would be incurred in the first
half.
MAIN FOCUS: Analysts to eye more details on the bank's
impairments, and on cost and revenue synergies to expect from
tie-up with Deutsche Bank.
---Commerzbank AG (CBK.XE)---(Friday May 8)
MARKET EXPECTATIONS: The bank is expected to announce further,
limited, crisis-related write-downs, to give an update on the
integration of Dresdner Bank, which it bought in January for EUR4.7
billion, and on its capitalization.
MAIN FOCUS: Special attention will be given to an update on the
talks with the E.U. Commission and conditions it may impose to
approve government aid. A required sale of Eurohypo, departure or
reduction of Eastern European operations, and a sale of smaller
units such as private bank Reuschel, and operations in Switzerland
and Luxembourg, have been speculated in recent press reports.
-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500;
ulrike.dauer@dowjones.com