Deutsche Watchful on Earnings - Analyst Blog

Deutsche Bank AG (DB) has cautioned about its fourth quarter 2010 earnings. The company expects earnings to decrease from the prior-year quarter on the back of acquisition-related costs and restructuring expenses.

In a preliminary guidance issued earlier this week, the company announced that it expects net income of around €600 million ($817 million), compared with € 1.3 billion in the year-ago period. However, the prior-year quarter figure reflects special tax items.

Deutsche Bank expects its total revenue to increase to € 7.4 billion from € 5.5 billion reported in the comparable quarter prior year. However, consolidation of the Deutsche Postbank AG and acquisition-related costs coupled with investments made to restructure its investment banking division pushed up its non-interest expenses to € 6.3 billion from € 4.2 billion reported a year ago.

Deutsche Bank is scheduled to release its detailed fourth-quarter and full-year 2010 results on February 3. The company is in fact the first of the major European banks reporting this month. UBS AG (UBS) is scheduled to report its fourth quarter results on February 8.

Our Take

Results were diverse for the investment banks in U.S. Goldman Sachs Group Inc.'s (GS) fourth quarter 2010 with earnings per share of $3.79 outpacing the Zacks Consensus Estimate of $3.73. In spite of challenging economic conditions, the company gained from a solid balance sheet and global client base. Goldman's results were, nevertheless, affected by poor performance in investment banking business and significantly higher operating expenses.

Deutsche Bank has adopted several strategic initiatives including the repositioning of its core business, bolstering of capital levels, opportunistic acquisitions and investments in organic growth. While such initiatives augur well, the costs associated with such efforts cannot be denied either. Going forward, though we expect the company to post a growth in earnings, we think any significant improvement will be necessarily restrained by the tardy recovery in the overall economy. 

 
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