(Repeats to add link to Breakingviews comment)
* Q2 pretax income up 16 percent to 917 million euros
* Sees litigation, regulations remaining "very challenging"
* Says cooperating in probes into high-frequency trading
* Says Ukraine, Middle East may hit markets and clients
* Tops up litigation reserves to 2.2 bln
(Adds investor comments, background, updates shares)
By Thomas Atkins and Arno Schuetze
FRANKFURT, July 29 Deutsche Bank AG's
bid to become "last man standing" in European investment banking
is working, the bank said on Tuesday, even as the threat
intensifies of costly litigation and regulatory actions.
Germany's flagship bank reported a 16 percent year-on-year
increase in quarterly pretax income, higher than expectations,
as revenue from its huge debt trading operations avoided the
harsh downturn that burdened its rivals.
But the spectre of expensive legal action cast a shadow over
the results, with the bank booking 470 million euros ($631
million) in litigation-related charges, lifting reserves for
future litigation to 2.2 billion euros.
Deutsche Bank faces a list of investigations ranging from
allegations of manipulating benchmark interest rates to unfairly
favouring some investors in off-market trading venues known as
dark pools. It has paid 5.6 billion euros over the past two
years in settlements and fines and expects to pay 3 billion more
"The pipeline of problems is endless," said fund manager
Helmut Hipper at Union Investment, one of Deutsche Bank's top 15
shareholders. "Whether it's currencies, Libor, gold or silver
trading, Deutsche Bank has numerous legal risks. That makes
things difficult to predict and weighs on the Deutsche Bank
The bank said on Tuesday it had received requests for
information from regulators related to high-frequency trading
and had been named as a defendant in class action complaints
alleging violations of U.S. securities laws related to
FINES AND SETTLEMENTS
With the threat looming of fines and settlement costs, as
well as European banking stress tests year, Germany's largest
lender raised 8.5 billion euros in June to strengthen its
It has also come under fire from U.S. regulators for shoddy
financial reporting, weak technology and inadequate auditing and
oversight, which it is addressing in part by hiring 500 U.S.
Investment bank earnings contributed the lion's share of
pretax income of 917 million euros, as revenue from debt trading
held steady, in contrast with downturns suffered by some rivals.
Analysts polled by Reuters had on average forecast a pretax
profit of 590 million.
"The market share gains we have seen in the second quarter
are very broad based," said co-Chief Executive Anshu Jain in a
conference call with analysts.
Investment banks faced a grim second quarter for revenue,
hit by subdued client activity, low interest rates and by
shrinking and restructuring of their businesses.
But Deutsche Bank posted a steady 1.8 billion euros in net
revenue in debt trading operations, while rivals saw a 9 percent
decline on average. "For me, the pleasant surprise was debt
sales and trading, and the costs line," said Bankhaus Lampe
analyst Neil Smith.
Deutsche Bank shares have fallen around 20 percent so far
this year versus a 1 percent rise in the STOXX Europe 600 index
of European banks. On Tuesday they edged into positive
territory, versus a flat performance in the index.
The bank's common equity Tier 1 (CET1) ratio, a measure of
balance sheet strength, rose to 11.5 percent at the end of the
quarter following the 8.5 billion euro capital increase in June.
(1 US dollar = 0.7445 euro)
(Additional reporting by Jonathan Gould; Editing by Mark Potter
and David Holmes)