Tax benefits spare Deutsche Bank’s profit blushes

Pre-tax income at Germany’s biggest bank was just €1.4 billion, a 19% drop on the third quarter of 2006. However, the net impact of income taxes in the quarter was positive, resulting in a €600 million cash injection, due to German tax reform, use of capital losses and the successful resolution of outstanding tax matters.

Both the pre- and post-tax results exceed the €1.2 billion profit expectation Deutsche announced at the start of October.

Despite the good overall headlines, various business units did take some punishment between July and September, mainly as a result of the firm’s holdings in mortgage-backed securities.

“The firm recorded writedown charges of €603 million on leveraged loans and loan commitments (net of related fees), and €1.56 billion on relative value trading in both debt and equity, structured credit products, and residential mortgage-backed securities. Reflecting these charges, corporate banking and securities reported a third-quarter pre-tax loss of €179 million,” the bank said in its earnings statement.

Deutsche’s shares rallied in the wake of the announcement, coming just a day after UBS, Europe’s biggest bank, declared pre-tax losses of SFr726 million and Merrill Lynch parted company with CEO Stan O’Neal after an $8 billion writedown.

See also: O'Neal 'retires' as Merrill CEO after $8 billion writedown
UBS warns of continuing subprime risk