Europe's banks show more financial frailty

By John O'Donnell and John Acher

FRANKFURT/OSLO (Reuters) - Two of Europe's big banks used newly relaxed EU accounting rules to boost their profits on Thursday while others took state cash and a top executive said he saw no light at the end of the financial crisis tunnel.

Deutsche Bank AG, the largest bank in Europe's largest economy, and Norway's biggest player DnB NOR, both posted results that were not as poor as the market had expected.

However, both were very cautious on future prospects and they exploited new EU reporting rules that relax the requirement to value assets at current market prices, softening the blow of writedowns.

Elsewhere in the region, Austria's Erste Group Bank and Kazakhstan's biggest player BTA both said they were taking government cash.

Deutsche Bank made a pretax profit of 93 million euros in the third quarter, dodging a loss thanks to the changed accounting rules that allowed it cut writedowns by more than 800 billion euros to 1.2 billion. They would have topped 2 billion euros ($2.6 billion) without the change.

But trading losses were heavy, and Chief Executive Josef Ackermann warned of more of the same to come.

"Conditions in equity and credit markets remain extremely difficult," he said, adding: "We will balance our dividend policy with our commitment to conserving capital strength in a highly uncertain environment."

Deutsche shares are trading at a price/earnings ratio of roughly 2.5 times estimated future earnings, a fraction of HSBC's 7.6 times or the sector average of almost 5.

DnB NOR also reported a smaller-than-expected drop in pretax profits for the third quarter, but warned the financial turmoil was making it more difficult to achieve its 2008 earnings target.

Pretax profits fell to 3.65 billion Norwegian crowns ($539.9 million) in the three months to the end of September from 4.50 billion crowns a year earlier. Analysts had expected anything between a loss of 290 million and a profit of 1.81 billion.

"Financial turmoil means that previous estimates for DnB NOR earnings in 2008 to be on par with 2007 will be much more difficult to achieve," the bank said. "The considerable financial turmoil is expected to weaken the level of economic activity among the banking group's customers."

The report followed generally weak third-quarter results from rival Nordic banks and insurers which have suffered along with other financial institutions in the global credit crunch.

MORE BAILOUTS

Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 billion euro ($3.4 billion) equity injection from the Austrian government at annual interest of 8 percent, as it posted results in line with estimates.

And Kazakhstan's BTA said it expected the government to inject $2.3 billion into its capital as part of a $5 billion bank bailout package announced earlier this week.