Deutsche Bank Derivatives Loss May Top $400 Million (Update2)
By Jacqueline Simmons and Jonathan Keehner
Oct. 27 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, lost more than $400 million on equity derivatives trades as stock markets headed for their biggest rout since the 1930s, two people with direct knowledge of the matter said.
The loss, equal to almost half of the Frankfurt-based company's second-quarter revenue from equity sales and trading, is a black eye for Richard Carson, global head of equity derivatives, and may signal more job losses at the bank.
``Everybody assumed most of the job cuts would be in fixed income, but when you incur a loss of more than $400 million in equity derivatives that might warrant cuts across asset classes as well as fixed income,'' said Bahadour Moussa, who specializes in derivatives recruitment at London-based Pelham International.
Deutsche Bank, led by Chief Executive Officer Josef Ackermann, may post its second quarterly loss of the year this week on writedowns and slowing revenue from investment-banking, according to the median estimate of six analysts. At the investment bank, co-headed by Anshu Jain, equity sales and trading revenue sank 49 percent in the first half as customers shunned structured products. The credit-crisis spread to equity markets in the third quarter, and the Standard & Poor's 500 Index is now heading for its worst month since 1938.
``In a volatile environment, anyone with a large inventory is vulnerable to surprising moves,'' said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods Ltd. ``We know Deutsche has had some troubles with equity derivatives in previous quarters.''
Shares Drop
Carson, 36, reports to Yassine Bouhara, the bank's global head of equities. Carson didn't return calls to his London office and cell phone seeking comment. Officials at Deutsche Bank in London and Frankfurt declined to comment.
Deutsche Bank dropped 15 percent to 25.69 euros in Frankfurt trading. The bank, which agreed last month to pay 2.8 billion euros ($3.5 billion) for 30 percent of Deutsche Postbank AG, may have to pay an additional 300 million euros for the stake after Postbank announced a 1 billion-euro share sale today. Postbank, Germany's biggest consumer bank by customers, dropped the most in more than four years in Frankfurt.
The stumble in derivatives is one of the biggest in sales and trading since Jain and Michael Cohrs, 50, took over the investment bank in 2004. Two years later, the bank's sales and trading were dragged down by losses from trading stocks for its own account. That year, then-Chief Financial Officer Anthony Di Iorio said the bank lost less than 100 million euros trading stocks for its own account in the second quarter.
Bonuses Forgone
Ackermann, 60, the highest-paid executive within Germany's top 30 companies, opted to forgo his 2008 bonus. Cohrs and Jain, 45, also agreed to go without the year-end payouts.
Volatile markets are curbing revenue at some of the world's largest banks. New York-based Citigroup Inc. said on Oct. 16 revenue from equity trading fell 54 percent in the third quarter on losses in convertibles, holdings of government sponsored enterprises and proprietary trading. Credit Suisse Group AG said last week 1.7 billion Swiss francs ($1.5 billion) of trading losses contributed to its second unprofitable quarter this year.
Deutsche Bank said in July second-quarter revenue from equity sales and trading dropped to 830 million euros from 1.4 billion euros in the same period a year earlier as demand for equity derivatives waned.
``The dislocations on capital markets in September must have had a catastrophic impact on the business'' at Deutsche Bank, Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, said in a note to investors.
Lehman Bankruptcy
Deutsche Bank's securities unit, known as corporate banking and securities, accounted for almost half of the company's total profit in 2007.
Lehman Brothers Holdings Inc.'s bankruptcy on Sept. 15 roiled equity and debt markets and forced governments from Washington to Berlin to shore up banks' capital. Deutsche Bank has booked markdowns of 7.3 billion euros since last year, and banks and brokers worldwide have reported credit losses and writedowns of more than $670 billion since the collapse of the U.S. subprime-mortgage market.
To contact the reporters on this story: Jacqueline Simmons in Paris at [email protected]; Aaron Kirchfeld in Frankfurt at [email protected]
Last Updated: October 27, 2008 13:03 EDT
By Jacqueline Simmons and Jonathan Keehner
Oct. 27 (Bloomberg) -- Deutsche Bank AG, Germany's biggest bank, lost more than $400 million on equity derivatives trades as stock markets headed for their biggest rout since the 1930s, two people with direct knowledge of the matter said.
The loss, equal to almost half of the Frankfurt-based company's second-quarter revenue from equity sales and trading, is a black eye for Richard Carson, global head of equity derivatives, and may signal more job losses at the bank.
``Everybody assumed most of the job cuts would be in fixed income, but when you incur a loss of more than $400 million in equity derivatives that might warrant cuts across asset classes as well as fixed income,'' said Bahadour Moussa, who specializes in derivatives recruitment at London-based Pelham International.
Deutsche Bank, led by Chief Executive Officer Josef Ackermann, may post its second quarterly loss of the year this week on writedowns and slowing revenue from investment-banking, according to the median estimate of six analysts. At the investment bank, co-headed by Anshu Jain, equity sales and trading revenue sank 49 percent in the first half as customers shunned structured products. The credit-crisis spread to equity markets in the third quarter, and the Standard & Poor's 500 Index is now heading for its worst month since 1938.
``In a volatile environment, anyone with a large inventory is vulnerable to surprising moves,'' said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods Ltd. ``We know Deutsche has had some troubles with equity derivatives in previous quarters.''
Shares Drop
Carson, 36, reports to Yassine Bouhara, the bank's global head of equities. Carson didn't return calls to his London office and cell phone seeking comment. Officials at Deutsche Bank in London and Frankfurt declined to comment.
Deutsche Bank dropped 15 percent to 25.69 euros in Frankfurt trading. The bank, which agreed last month to pay 2.8 billion euros ($3.5 billion) for 30 percent of Deutsche Postbank AG, may have to pay an additional 300 million euros for the stake after Postbank announced a 1 billion-euro share sale today. Postbank, Germany's biggest consumer bank by customers, dropped the most in more than four years in Frankfurt.
The stumble in derivatives is one of the biggest in sales and trading since Jain and Michael Cohrs, 50, took over the investment bank in 2004. Two years later, the bank's sales and trading were dragged down by losses from trading stocks for its own account. That year, then-Chief Financial Officer Anthony Di Iorio said the bank lost less than 100 million euros trading stocks for its own account in the second quarter.
Bonuses Forgone
Ackermann, 60, the highest-paid executive within Germany's top 30 companies, opted to forgo his 2008 bonus. Cohrs and Jain, 45, also agreed to go without the year-end payouts.
Volatile markets are curbing revenue at some of the world's largest banks. New York-based Citigroup Inc. said on Oct. 16 revenue from equity trading fell 54 percent in the third quarter on losses in convertibles, holdings of government sponsored enterprises and proprietary trading. Credit Suisse Group AG said last week 1.7 billion Swiss francs ($1.5 billion) of trading losses contributed to its second unprofitable quarter this year.
Deutsche Bank said in July second-quarter revenue from equity sales and trading dropped to 830 million euros from 1.4 billion euros in the same period a year earlier as demand for equity derivatives waned.
``The dislocations on capital markets in September must have had a catastrophic impact on the business'' at Deutsche Bank, Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, said in a note to investors.
Lehman Bankruptcy
Deutsche Bank's securities unit, known as corporate banking and securities, accounted for almost half of the company's total profit in 2007.
Lehman Brothers Holdings Inc.'s bankruptcy on Sept. 15 roiled equity and debt markets and forced governments from Washington to Berlin to shore up banks' capital. Deutsche Bank has booked markdowns of 7.3 billion euros since last year, and banks and brokers worldwide have reported credit losses and writedowns of more than $670 billion since the collapse of the U.S. subprime-mortgage market.
To contact the reporters on this story: Jacqueline Simmons in Paris at [email protected]; Aaron Kirchfeld in Frankfurt at [email protected]
Last Updated: October 27, 2008 13:03 EDT
