Deutsche Bank Below Consensus

Today (Wednesday), Deutsche Bank AG (DB) preannounced a fourth quarter loss of EUR4.8 billion and a full-year loss of EUR3.9 billion, principally related to sales and trading, especially in Credit Trading, Equity Derivatives, and Equities Proprietary Trading.

This is far worse than consensus and our recently reduced estimate for the fourth quarter. The loss also reflects risk exposure reductions, increased loss provisions against monoline insurers, and other unusual gains and losses, including reorganization charges.

DB also significantly reduced exposure to leveraged loans and to EUR1 billion from EUR11.9 billion at the end of 2008’s third quarter, while commercial real estate was brought down to EUR3 billion from EUR8.4.

This and other deleveraging measures have had a positive impact on the company’s balance sheet, with an estimated Tier 1 ratio of a solid 10% at the end of the fourth quarter versus 10.3% at the end of the third quarter. This reflects a dividend accrual of EUR0.50 for 2008, far below the 2007 accrual of EUR4.50. We are not surprised by the dividend reduction, as DB previously stated it was likely to cut the dividend in 2008, and the amount seems appropriate in view of the large loss posted in 2008.

In other news, DB revised the terms of its acquisition of a majority stake in Postbank from Deutsche Post AG in a complex three-step process with a cash value of EUR4.9 billion. Upon closing of the new structure, DB will use EUR1.2 billion less Tier 1 capital than under the prior agreement.

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