Deutsche and ABN Amro raise provisions for bad debts

Deutsche Bank and ABN Amro yesterday unveiled a cautious outlook for the investment banking sector, announcing more increases of provisions for bad debts.

Deutsche, Germany's largest bank, more than doubled provisions to €270m (£165m) in the first three months of the year compared with a year ago, but the sum was down slightly on the fourth quarter.

ABN Amro's bad loan provisions increased 46 per cent year on year to €390m. This was also down on the fourth quarter, when ABN and other banks were hit by Enron's collapse.

Provisions for bad debts and the general decline in corporate activity hit both banks' profits. ABN's net profits fell 42 per cent to €397m, while Deutsche suffered a 70 per cent decline in underlying profits. Its bottom line was helped by a €1bn sale of shares in Allianz and Munich Re, leading to a 39 per cent increase in pre-tax profits to €1.2bn.

Deutsche is expected to sell more of its equity portfolio, and may also divest its index-tracking operations, to boost earnings.

It has embarked on a drive to cut its costs, including announcing 9,200 redundancies worldwide in December.

There has been speculation that the bank planned to scale back low-margin lending to small and medium-sized companies in Germany because it is low margin and high risk.

Deutsche rejected that. But Josef Ackerman, who will take over as chief executive in three weeks, is expected to shake up Deutsche's patriarchal culture to make it more efficient.

Meanwhile, ABN's chief executive Rijkman Groenink, repeated his cautious outlook for this year. Last month it closed its equities and corporate finance business in the US, axing 550 jobs, and is in the process of restructuring its Dutch retail business.