Friday, October 31, 2008

Accounting Change Lifts Deutsche Bank

--Deutsche Bank reported positive earning in Q3 08 by avoiding mark-to-market accounting policy, whici was allowed by European IAS --The trick might be imitated by other European banks in the Q3. Deutsche Bank AG, helped by a change in the way European banks book souring assets, posted a profit in the third quarter even as in-house trading bets in the stock and credit markets led to third-quarter losses totaling €1.3 billion ($1.68 billion). The Frankfurt bank, which has navigated around write-downs tied to loans for homes and acquisitions, reported third-quarter net income of €414 million, far below net income of €1.6 billion in the same period a year ago. A change this month by European accounting policy makers allowed banks to move souring loans to their hold-to-maturity books, limiting write-downs that would have resulted from valuing the assets at market prices. Deutsche was one of the first banks to take advantage of the change in International Accounting Standard 39, recategorizing €24.9 billion of loan exposure. For the third quarter, Deutsche avoided €845 million in write-downs, but still reported total write-downs of €1.2 billion. The accounting change meant Deutsche essentially was able to report the net income of €414 million instead of a €122 million loss. Deutsche shares rose 18% to €29.20 in Frankfurt. Jon Peace, a bank analyst at Nomura International PLC in London, said the increase reflected relief that Deutsche didn't lay out plans to sell stock on the market like many of its peers have. The bank raised €2.2 billion in capital in September to finance the acquisition of a minority stake in Deutsche Postbank AG. "People were fearful of an announcement of a big, dilutive recapitalization, and it's not come through," Mr. Peace said. The next test of the new rules will be when Switzerland's UBS AG reports results Tuesday. France's BNP Paribas SA reports Wednesday, and its French rival Société Générale SA follows on Thursday. Josef Ackermann The outlook from the German bank is seen as a barometer both for the European banking system and for financial firms dependent on the sales and trading of securities tied to stocks and bonds. Chief Executive Josef Ackermann said he expected the broader economy would hurt the global financial system, saying in a note to investors, "The credit environment is already becoming tougher. Corporate default rates are rising, as are delinquencies in consumer and credit card lending." Mr. Ackermann's comments underscore the difficult months ahead that banks globally face even after a period of 45 days that saw coordinated interest-rate cuts, capital infusions in banks, and governments agreeing to back the issuance of bank debt. Banks globally also are trying to identify how they will generate revenue in the wake of the credit crunch while also trying to sidestep money-losing in-house bets. Deutsche's investment bank, for example, reported a loss of €789 million, compared with a loss of €179 million in the year-earlier period. Traders responsible for using the bank's money to make bets in the stock market lost €386 million. At the same time, Deutsche's in-house debt traders posted trading losses of €873 million.

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