Deutsche bank sounds the alarm

TROUBLED Deutsche Bank issued a dramatic profits warning today - 24 hours after it joined other troubled German banks in a plan to salvage the industry.

Germany's largest bank said first-quarter pre-tax profits were hit by charges of e725m (£501m) after it wrote off losses in insurance investments, securities and private equity investments in firms such as embattled Italian carmaker Fiat and reinsurer Gerling.

Only the partial offset of the sale of businesses of approximately e500m stopped the red ink at Deutsche from spreading further. The bank has been trying to sell its 34.5% stake in Gerling but talks with mutual insurer HDI broke down early this month.

Deutsche Bank now expects a first-quarter loss after tax of about e200m when full figures are released in six days. The bank's shares today fell e1.21 to e46.89.

'The charges are heavy,' said WestLB analyst Georg Kanders, who put his outperform rating under review. 'I did not expect such a severe profit warning. However, the operating business seems to have run as well as expected.'

A German fund manager said: 'The headline figures will be difficult for the market to digest. Although many expected something in this direction, the extent of this will come as a surprise.'

The profit warning will be an embarrassment for chief executive Josef Ackermann who shared £7.25m in bonuses and salary with three other board members last year despite a 16% fall in the bank's 2002 profits to e1.9bn.

The results, a hammer blow to a reeling German banking sector, come a day after the country's main commercial lenders agreed to a State-supported bailout.

Deutsche joined Dresdner, DZ, HVB and Commerzbank in a plan in which they would sell securities backed by proceeds from loans, a measure that would give them a new way to raise cash. The banks will bundle their loans into bonds, which will then be sold to investors.

State-backed lender Kreditanstalt fur Wiederaufbau said it would supply technical expertise but no financial guarantees to the joint venture. The plan must be rubber-stamped by the German parliament.

Deutsche Bank has told California regulators that emails related to an investigation into the company's research practices are missing. It has been excluded from a $1.4bn (£882m) settlement of claims against Wall Street banks for biased research after it turned in only 80% of the documents it was asked for.