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Lawsuit expenses hit Deutsche Bank profit

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DAVID McHUGH | October 29, 2013 06:12 AM EST | AP

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FRANKFURT, Germany (AP) — Deutsche Bank said Tuesday net profit dwindled to a bare 51 million euros ($70 million) in the third quarter after it set aside 1.2 billion euros for losses from lawsuits.

The net profit compared with 754 million euros in the same quarter a year ago. Profit for the third quarter fell far short of the average analyst estimate of 320 million euros as compiled by financial data provider FactSet.

The bank also said its investment banking business slowed, leading net revenues to fall 10 percent to 7.7 billion euros.

It said the deduction to earnings for litigation costs were mostly related to legal action over U.S. residential mortgage-backed securities, investments that were based on mortgage loans to borrowers with shaky credit. The securities helped drive financial turbulence in 2007-2009 as they lost value.

The charges for the quarter raised Deutsche Bank's set-asides for likely litigation costs to 4.1 billion euros. Litigation charges have weighed on earnings for several quarters. During a conference call with investment analysts, Chief financial officer Stefan Krause acknowledged that the uncertainty over how big the litigation bill would eventually be was "frustrating for investors."

Revenues at the investment banking unit fell 26 percent. The bank suffered from a slowdown in trading debt securities such as bonds. Bond markets have been volatile in recent months due to uncertainty about when the U.S. Federal Reserve might start cutting back its bond purchase program. The Fed's program is aimed at holding down longer term interest rates and supporting growth. Revenue from sales and trading in bonds fell to 1.29 billion euros from 2.73 billion euros.

Deutsche Bank said it was making progress in strengthening its finances and reducing its holdings of risky investments to meet new regulatory requirements and was cutting costs, including for compensation.

Shares in the bank fell 2.1 percent to 35.15 euros in morning trading in Europe.