FRANKFURT Josef Ackermann's reign at Deutsche Bank ended in a surprise quarterly loss on Thursday, with the bank hit by a downturn in bond trading due to the euro zone crisis and writedowns on holdings in drug and gambling companies.
Ackermann has presided over the country's largest bank as chief executive for a decade, overseeing a drive into investment banking, and is a household name in Germany.
Deutsche Bank posted a fourth-quarter pretax loss of 351 million euros ($463 million) compared with a 707 million euro profit in the same period the year before. The result was well below the 1.05 billion euro profit forecast in a Reuters poll.
"The results are a catastrophe," said analyst Dirk Becker from brokerage Kepler, adding the bank's results would have more or less met consensus without one-off items.
Writedowns on Deutsche Bank's exposure to pharmaceuticals company Actavis, Cosmopolitan casinos and wealth manager BHF Bank led to a 722 million euro pretax loss in the corporate investments division. It also set aside 380 million euros for litigation in the corporate banking and securities division.
Ackermann said the bank had sped up court settlements and revaluations at the end of the year to clean out previous investments that had gone wrong.
The investment bank's performance also deteriorated due to "extreme" market conditions as the European sovereign debt crisis spooked its clients. Revenue from trading debt products -- its cash cow -- was down 38 percent in the quarter.
Ackermann said business remained below year-earlier levels in January.
Peers such as Morgan Stanley, Goldman Sachs, JPMorgan and Bank of America have also posted lackluster trading and investment banking revenue in the fourth quarter as clients shunned capital markets and put off deals.
One bright spot for Deutsche were the so-called "classical banking" businesses such as private banking, cash management and treasury services.
However, a pretax profit of 392 million euros from asset and wealth management and retail banking failed to offset a 422 million euros pretax loss from its investment banking unit.
"Cost overrun in the corporate and investment banking division is the key negative message for us," said Espirito Santo analyst Andrew Lim.
The unexpectedly bad result comes only months before Ackermann hands the reins of Germany's flagship lender to investment banker Anshu Jain and Germany chief Juergen Fitschen, who are due to take over as co-chief executives in May.
Jain kept a low profile at the group's annual press conference, sitting in a row with 13 other executive committee members and smiling as Ackermann answered the lion's share of the questions. Jain, who has been criticized in Germany for not learning the language, used a translation service as he sat three seats to the right of the outgoing chief executive.
In his decade at the top of Deutsche, Ackermann transformed it from being a German lender mainly serving industrial companies into an international investment bank with retail banking, asset management and wealth management operations.
Ackermann, a 63-year-old Swiss, joined Deutsche Bank in 1996 and became CEO in 2002, overseeing four phases of transformation including a shift in strategy with a focus on shareholder value.
When Ackermann took over, the bank's share price was at about 70 euros. On Thursday, Deutsche Bank shares were down 1.59 percent at 33.50 euros by 1119 GMT, underperforming a slightly firmer sector index.
In the early stages of his career, Ackermann aggressively expanded investment banking and cut Deutsche Bank's dependence on German revenues through global expansion and by unwinding a portfolio of German industrial holdings.
As an advocate of shareholder value he faced opposition from politicians who said this focus on profitability was not compatible with the "social market economy."
Later, Ackermann set an ambitious target of raising profitability to a pretax return on equity of 25 percent, which he first achieved in 2005.
By now, such goals have become harder to achieve as regulators ask lenders to hold more capital reserves to cover potential losses, and Ackermann said he now aimed for a more modest return on equity of 15-18 percent. ($1 = 0.7577 euros)
(Reporting By Edward Taylor and Arno Schuetze; Editing by Hans-Juergen Peters and Alexander Smith)