Deutsche hit by €1.7 billion equity derivatives losses in Q4
Deutsche Bank confirmed a net loss of €4.8 billion for the fourth quarter of 2008, bringing total losses for the year to €3.9 billion, compared with a net income of €6.5 billion in 2007. Year-on-year net revenues for the quarter fell from €7.3 billion in 2007 to €885 million.
The corporate banking and securities business sustained particularly heavy losses, with a negative €3.8 billion net revenue recorded for the quarter. Equity derivatives, equity proprietary and credit trading were the prime culprits, contributing to a negative €4.8 billion net revenue for sales and trading.
Equity derivatives losses reached €1.7 billion, attributed to managing structural risks around correlation, volatility and dividends. Equity proprietary trading racked up a deficit of €413 million due to widespread de-leveraging in the market, which reduced convertible values and increased basis risk.
Credit trading losses totalled €3.4 billion. Of this, €1 billion was related to credit proprietary trading, which incurred losses from exposure to the US automotive industry, spiralling corporate and convertible bond prices, and basis widening compared with the credit default swaps used to hedge them. Further mark-downs amounted to €1.7 billion, including €1.1 billion for reserves against monoline insurers and €244 million as provisions against residential mortgage-backed securities. Revenues in origination were one of the few profitable areas, with a year-on-year rise of 84% to €938 million.
Provision for credit losses in Q4 was €591 million, 80% higher than Q4 2007, which included €185 million of loans reclassified under amendments to IAS 39, the International Financial Reporting Standards' rule detailing fair-value accounting.
Deutsche's other businesses maintained positive net revenues for the quarter. Private clients and asset management achieved net revenues of €2 billion, although this was a year-on-year decline of 22%. Meanwhile, global transaction banking recorded a year-on-year increase of 14%, with net revenues of €751 million.
The bank's Tier I capital ratio stood at 10.1% at the end of the quarter, down from 10.3% in Q3. Total assets rose to €2,202 billion from €2,062 billion in the previous quarter, while positive market values from derivatives increased from €727 billion to €1,224 billion as a result of market volatility and interest rate movements.
"We are very disappointed at our fourth-quarter result and at the consequent full-year net loss in 2008. Operating conditions were completely unprecedented, and exposed some weaknesses in our business model. We therefore are repositioning our platform in some core businesses," commented Josef Ackermann, chairman of the board at Deutsche Bank, in a statement. On January 14, Ackermann detailed the bank's retrenchment plans: "We have substantially reduced our exposures in leveraged finance, commercial real estate and other key credit market exposures, and expect no further material negative impact from these areas. We have scaled back or exited trading strategies most affected by market turbulence. We have significantly reduced trading assets, and thus reduced balance sheet leverage."
See also: Deutsche Bank expects €4.8 billion Q4 loss
Deutsche's equity derivatives heads leave
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
One year on, regulators still want a cure for bank runs
Broad support for higher outflow assumptions on uninsured deposits, but that won’t save insolvent banks
Watchlist and adverse media monitoring solutions 2024: market update and vendor landscape
This Chartis report updates Watchlist monitoring solutions 2022 and focuses on solutions for sanctions (name and transaction) screening and monitoring adverse media and its related elements
Basel Committee reviewing design of liquidity ratios
Focus on LCR and NSFR after Silicon Valley Bank and Credit Suisse, but assumptions may not change
Risk, portfolio margin, regulation: regtech to the rescue
A white paper outlining the complexity of setting the course for risk, margin and regulation
Prop shops recoil from EU’s ‘ill-fitting’ capital regime
Large proprietary trading firms complain they are subject to hand-me-down rules originally designed for banks
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FCA presses UK non-banks to put their affairs in order
Greater scrutiny of wind-down plans by regulator could alter capital and liquidity requirements
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Most read
- Podcast: Olivier Daviaud on P&L attribution for options
- SG trader dismissals shine spotlight on intraday limit controls
- Too soon to say good riddance to banks’ public enemy number one