Deutsche Bank AG, Germany's biggest bank, fourth-quarter profit fell 48% on lower revenue from trading bonds and higher compensation costs.
Net income declined to 953 million Euros ($1.39 billion), or 1.93 Euros a share, from 1.84 billion Euros, or 3.56 Euros, a year earlier. That beat the 923 million-Euro a median estimate of 12 analysts surveyed by Bloomberg.
For all of 2007, Deutsche Bank earned a profit of 6.5bn euros ($9.4bn), which is up 7% compared with 2006.
Net revenues for the fourth quarter were EUR 7.3 billion, up 2% versus the fourth quarter 2006.
"I am pleased to report robust earnings for the fourth quarter, which concludes one of our best years ever and a year of solid performance in challenging times," chief executive Josef Ackermann said. "We put up a good fight."
The investment banking division, which is the motor of the group's business, posted a 57% decline in pre-tax profit to 447m euros in the final quarter, due to sagging demand for debt products.
Deutsche Bank said it didn't take any write-downs related to subprime or other mortgage exposure in the quarter. And in its leveraged-finance operations, which had significant write-downs in the third quarter, the latest charges were kept below 50 million euros.
Dr Ackermann said Deutsche Bank's risk management policies helped it to weather the wild fluctuations in financial markets.
Last summer the bank made a bet that the markets would not bounce back after the collapse of the subprime housing market.
Deutsche Bank said it acted swiftly, reducing its positions in asset-backed securities and collateralised debt obligations
Ackermann is upbeat about 2008, He reiterated its full-year pretax profit target of 8.4 billion Euros, excluding one-time costs and charges, and plans to raise the dividend by 13% to 4.50 Euros a share. Analysts say bank may miss the profit goal because of slowdown in debt markets.
Compared to the losses taken by Citigroup, Merrill Lynch and UBS, Deutsche Bank has dodged the worst of the sub-prime mortgage crash. So no further write-downs, at least for the time being!!
My worries
My worry is that they're too geared to the fixed-income market. So even though they've been good at avoiding writedowns, it's very hard to replace the business they were doing last year.
How much was skill, and how much was luck? Ackermann says Deutsche Bank strategists last year recognized that the U.S. housing market was overheated and unwound their exposure. However the bank couldn't avoid some losses, writing off $3.2 billion in the last quarter. And in the most recent quarter, it wrote off about $74 million related to its leveraged finance business.
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