Deutsche Bank braced for an economic slump by raising loan loss provisions in the second quarter, overshadowing a nearly 70 per cent rise in net profit driven mainly by its investment bank.
Shares in Deutsche, Germany's biggest bank, fell 7.9 per cent to €47.93 by 0912 GMT (10:12 a.m. British time) yesterday - the largest decliner on the German blue-chip DAX index - as its cautious outlook showed that fallout from the global credit crisis in the real economy is a concern, even as investment banking profits recover.
Deutsche said its provisions for credit losses rose to one billion euros (£864 million) in the second quarter from €135 million a year earlier and were almost double the €526 million in provisions made in first quarter.
Equinet analyst Phillip Haessler said he was particularly worried about the bank's higher risk provisions.
"While the second-quarter results were strong, we expect the positive capital market environment will not be sustainable," he said.
BBVA, Spain's second-largest bank, also said yesterday it raised its bad loan provisions, prompting a 10 per cent decline in first-half net profit, but net interest income increased sharply.
Deutsche Bank chief executive officer Josef Ackermann said the Frankfurt-based bank was well prepared for an uncertain environment, adding that he remained cautious on the outlook for the global economy, particularly employment and real estate markets.
For the banking sector as a whole, pressure on loan portfolios is likely to continue increasing substantially as private and corporate insolvencies mount and default rates rise, Deutsche Bank said.
The lender's second-quarter net profit rose to €1.09 billion from €649 million a year earlier, and above the €985 million average estimate in a Reuters analyst poll.
But earnings were flattered by a low tax rate made possible by a raft of one-off charges. On a pre-tax level, profit more than doubled to €1.32 billion, but fell short of the €1.47 billion average analyst estimate.
"We call the second-quarter numbers a mixed bag. Deutsche Bank did not beat market expectations. Pretax earnings were slightly below and net income slightly above market expectations due to a low tax rate of 18 per cent," said DZ Bank analyst Matthias Duerr.
The figures underline Deutsche's reliance on investment banking, which on its own accounted for more than 60 per cent of total pretax profit in the second quarter.
Rival Credit Suisse last week posted better-than- expected profit on the back of market share gains in investment banking and hefty wealth management inflows.