Deutsche Bank writedowns swell beyond $11 billion

Deutsche Bank CEO Josef Ackermann speaks during the annual shareholders meeting in Frankfurt May 29, 2008.

FRANKFURT (Reuters) - Deutsche Bank AG (DBKGn.DE) announced $3.6 billion of fresh writedowns on Thursday, taking its bill from the financial crisis beyond $11 billion and putting it among the top ten global casualties of the turmoil.

Germany's flagship financier had originally been seen as one of the few to emerge unscathed from the crisis, but as the problems on international markets continue Deutsche Bank is being sucked ever deeper into trouble.

The group's pretax profit collapsed in the second quarter to 642 million euros ($1 billion) -- a fraction of the 2.7 billion euros it made a year earlier -- as writedowns ate into its bottom line.

Deutsche listed its latest injuries, which included 1 billion euros of writedowns in residential mortgage-backed securities and a further 500 million euros linked to monoline insurers which insure against bond defaults. Commercial property investments cost another 300 million euros.

Its bill from the credit crisis has now overtaken that of rival Credit Suisse (CSGN.VX), which has made about $8 billion of writedowns.

Some fear that Deutsche could be forced to make further writedowns. "There is a suspicion that there might be more to come," said one analyst, who asked not to be named.

He pointed to the fact that Deutsche had cut the book value of its 24 billion euro portfolio of leveraged loans by substantially less than Credit Suisse.

Deutsche would normally farm these loans out to other banks but they have become harder to sell after the credit squeeze and their value must be deflated to reflect this.

Deutsche's finance chief Anthony Di Iorio, however, defended the bank's writedowns as fair while Deutsche's shares gained 1 percent by 1220 GMT, in line with the German blue-chip index.

TAMED BULL

"We remain cautious for the remainder of 2008," said Chief Executive Josef Ackermann, who also chairs top global banking group the Institute of International Finance.

His remarks on Thursday contrast with his bullish statements of the past. As late as November, Ackermann signalled he saw no further writedowns and stood by his 2008 pretax profit goal of 8.4 billion euros, a target that has since been quietly dropped.

So far this year, the bank has made roughly 400 million euros pretax profit.

"The writedowns are the decisive point and show that the crisis lingers," said Konrad Becker, an analyst at brokerage Merck Finck. "But the results, if you look at costs and interest income, for example, are better than expected."

Deutsche's wage bill fell by almost one third to almost 2.7 billion euros in the second quarter as bonus payouts declined.

Many investors believe Deutsche is over-reliant on investment banking, which is suffering as the liquidity which oils international financial markets dries up.

Credit Suisse, for example, can fall back on its business managing the money of the world's rich, which accounted for roughly 40 percent of profits in the investment banking boom years.

Deutsche Bank, by contrast, earned almost two thirds of pretax profit in 2006 from investment banking -- where it dipped into the red in the second quarter, making a loss of 311 million euros.

Investor concern is reflected in Deutsche's share price, which has lagged the index of European bank stocks by 5 percent this year. It trades on six times forecast earnings for 2009 -- a discount to Credit Suisse at above 8 times.

(Editing by Elaine Hardcastle)