Deutsche figures deepen Germany's banking gloom

Germany's banking woes today deepened as Deutsche Bank announced a surprise loss in the third quarter.

Germany's largest bank reported a pretax loss of 181m euros (?115m) compared to a 363m euro profit a year ago. Analysts had expected Deutsche to make a profit of 282m euros.

The losses stemmed partly from for a sharp rise in provisions for bad loans, which shot up to 753m euros from 135m euros a year ago, and from 588m euros in the second quarter.

In its core investment bank business, Deutsche suffered from a dearth of mergers and acquisitions because of the prolonged market slump, while income from its own trading in shares, bonds and currencies more than halved to 904m euros from 1.9bn euros a year ago.

Nevertheless, Deutsche said it expected a "satisfying" result for the year as a whole.

"With only two months to go in the year, we are confident that we will be able to report a satisfying full-year 2002 result," Deutsche's chief executive, Josef Ackermann, said in a letter to shareholders.

German banks are suffering more than their counterparts from other European countries because a large chunk of the economy relies on small and medium-sized firms. Unlike other similar sectors in Europe, these businesses rely far more on bank borrowing than the equity markets.

With small and medium-sized firms going bust in increasing numbers - corporate insolvencies are expected to reach 35,000 this year - German banks are getting hit by the fallout.

Trying to stay ahead of the game, Deutsche is seeking to cut costs by 2bn euros by the end of 2003. As part of its retrenchment, 10,000 of more than 14,000 planned job cuts have been carried out. In other moves to raise money, it merged its mortgage bank with those of its Frankfurt rivals, Commerzbank and Dresdner Bank, and sold its stakes in insurers Allianz and Munich Re.

Despite its problems, Deutsche is better placed than its rivals, such as HVB and Commerzbank, to weather the crisis by selling assets.