Foreign strength keeps Deutsche Bank stable: Downbeat outlook for Germany makes profit rise unlikely

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The Independent Online
THANKS to a strong performance outside Germany, Deutsche Bank's group net income rose nearly 23 per cent to DM2.2bn (pounds 887m) last year. Hilmar Kopper, chief executive of Germany's largest commercial bank, said earnings in the first two months of 1994 suggested the results this year would be stable.

A comparatively downbeat outlook for the German economy and the delayed effects of the recession on banking mean that any improvement on 1993 results is unlikely, he said.

Deutsche more than doubled its risk provisions last year to DM3.3bn, mainly to protect itself against domestic economic weakness. Group pre-tax profit grew in 1993 by 23 per cent to DM4.6bn.

Deutsche benefited from the robust performance of the international stock and bond markets last year. Net income from its own account trading in financial transactions soared by 76 per cent to DM2bn. Net commission income grew by more than 26 per cent to DM5.8bn, including a 40 per cent jump from securities due to higher volumes.

Morgan Grenfell, Deutsche's British subsidiary, and DB Luxemburg performed particularly well.

The group balance sheet at the end of 1993 rose by 11.6 per cent to DM557bn.

Mr Kopper defended the bank's derivatives business, arguing that 'a bank that fails to exploit the full range of risk management opportunities for itself and its customers is not doing its job properly'. He said the burgeoning derivatives market need not entail an unacceptable increase in risks, as long as such activities were kept transparent and supervisory standards applied to all participants.

Ulrich Cartellieri, Deutsche's chief financial officer, pointed out that the growth of derivatives and the increased complexity of the international financial markets were detracting from central banks' ability to steer monetary policy.

Mr Cartellieri said the weakness of the German economy and rapidly declining inflationary pressures meant that there was greater room for interest rate cuts than was being used.

The bank offered a bleak view of Germany's recovery prospects this year. The continued decline of private consumption, and no improvement in investment activity, would act as a brake on the economy.