UPDATE 2-Deutsche Bank considers profit warning -WSJ

Fri Jan 17, 2014 6:18pm EST

* Deutsche hit by sales of non-core assets in Q4 - WSJ

* Deutsche signaled litigation costs to rise in last quarter

* Fixed-income trading revenue seen remaining weak

FRANKFURT, Jan 17 (Reuters) - Deutsche Bank AG is considering a profit warning as executives believe its upcoming quarterly results will be below investor expectations, the Wall Street Journal reported, citing people familiar with the matter.

The largest German bank, which is scheduled to release fourth-quarter results on Jan. 29, suffered bigger-than-expected losses from sales of non-core assets, these people said, the Journal reported.

A profit warning would compound a series of problems that have dogged the bank over the past year, especially a lengthening list of lawsuits and regulatory matters, and redouble pressure on co-Chief Executives Anshu Jain and Juergen Fitschen to prove their turnaround plan is on track.

Deutsche Bank's spokesman Ronald Weichert declined to comment, when contacted by Reuters.

Deutsche Bank has already signalled the need to top up a 4.1 billion euro pool of litigation reserves after two major settlements in December. Litigation costs have been, up to now, expected to be the greatest drain on fourth-quarter results.

The German bank was fined $1.9 billion in December by the U.S. Federal Housing Finance Agency to settle claims it defrauded two U.S. government-controlled companies in the sale of mortgage-backed securities before the 2008 financial crisis.

It was also fined 725 million euros by EU antitrust regulators for rigging interest rates.

LIGHTENING THE LOAD

Separately, the bank has reduced assets to bolster its capital ratios, with Deutsche lightening the load at a rate of about 30-40 billion euros per quarter. Deutsche last year earmarked 250 billion euros in assets to trim from its balance sheet - some which occurred through sales and others by reducing credit lines or other accounting measures.

Any major problems with those reductions would come as a surprise to investors, for the bank has offered no indications to date that those reductions have proceeded poorly.

But Deutsche is widely expected to have suffered weaker revenue in the last quarter due to a fall-off in fixed income trading volumes, one of the bank's most important money makers and areas of strategic importance.

The bond market softened already in the third quarter of 2013 as investors braced for higher interest rates, a shift that affected trading, underwriting and investment income for Wall Street banks including Goldman Sachs.

Industry wide, bond trading has come under pressure due to new regulations that restrict activities such as proprietary trading and others that make it more expensive for banks to trade or hold securities on their balance sheets.

Analysts on average expect the bank to earn 0.48 euros (65 cents) on revenue of 7.55 billion euros ($10.24 billion) in the fourth quarter, according to Thomson Reuters I/B/E/S/.

Deutsche Bank's U.S.-listed shares closed down 3 percent at $52.27 on Friday on the New York Stock Exchange.

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