Deutsche Shrs Weaken As It Posts Prop-Trade Loss
(why can't thier trading desks make money like the other big banks?)
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By Victoria Howley
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Deutsche Bank AG (DB) struck a blow for transparency Tuesday, disclosing a swing to loss in proprietary equity trading, but it was rewarded with a drop of more than 3% in its share price.
At 1406 GMT, the shares were down EUR3.2, or 3.6% to EUR87. The loss in proprietary equity trading wasn't entirely to blame, analysts said, but Germany's largest bank by market capitalization might have limited the damage if it had been as opaque as some of its U.S. peers.
Chief Financial Officer Anthony Di Iorio told a conference call Tuesday that the group's own-account equity trading had posted a loss of just under EUR100 million, compared with a first-quarter profit of EUR400 million. He added that the losses weren't incurred in a specific area and were due to unfavorable market conditions.
The disclosure shed light on what is one of the most opaque areas in the sales and trading business.
Proprietary, or prop, trading is when a bank trades stocks, bonds or other items with its own money as opposed to its customers' funds. It offers little transparency to the market, and financial disclosures are rare.
"Visibility is low in prop trading," said Jon Peace of Fox-Pitt Kelton. "Deutsche has given us a specific breakdown, and this goes beyond what other banks have done."
Another analyst said he suspected there had been prop-trading losses at some U.S. banks but that the data would have been rolled into wider figures for sales and trading.
He said that Deutsche Bank may have opted for disclosure after negative news coverage surrounding the performance of DB Advisors, the firm's in-house proprietary trading business, in 2004.
Despite the unusual nature of the disclosure, analysts said it was important to keep the second-quarter loss in proportion.
Deutsche Bank's sales and trading revenue for debt and other products was the best ever for a second quarter, up 46% to EUR2.4 billion, against a backdrop of better markets in credit trading and strong customer activity in the foreign exchange, money markets and rates businesses.
"One quarter does not change things, and equity prop trading was profitable in the first quarter," Peace said. "It would take a few more bad quarters before the bank made any significant changes in strategy."
Analysts also endorsed Deutsche's citation of market conditions as the cause of the own-account trading loss. They said the bank's weaker performance than some of its U.S. peers could be due in part to the fact that U.S. banks closed their accounts for the second quarter in May, which means they escaped the impact of further volatility in June.
"We were sitting here when the market turned in May and June and all the banks felt the pressure," said Kinner Lakhani, an analyst at ABN AMRO. "The markets were very difficult from May 10 right through until June 30, and Deutsche Bank felt the pain more than many others."
-By Victoria Howley, Dow Jones Newswires; 44 20 7842 9261; victoria.howley@dowjones.com
(END) Dow Jones Newswires
August 01, 2006 11:01 ET (15:01 GMT) |
