pounds 50m rise in Deutsche bill for MGAM

Deutsche Bank revealed yesterday that it took a pounds 430m hit on its 1996 accounts due to the Peter Young scandal at its Morgan Grenfell Asset Management (MGAM) arm, some pounds 50m more than previously indicated.

When the scandal emerged the giant German bank, Europe's largest, minimised bad publicity by immediately agreeing to compensate all clients of Mr Young's funds last year.

But it still awaits an imminent fine, expected to be over pounds 1m, from the Investment Management Regulatory Organisation (Imro), the industry regulator.

Trading in three MGAM funds was suspended in September following the discovery of irregularities in the valuations in some of the unit trusts managed by Mr Young. Deutsche responded by making a record compensation offer, the bulk of which should be paid to investors by April.

Mr Young was sacked by the firm and is under investigation by the Serious Fraud Office (SFO). Mr Young has said he is not guilty of any criminal activity and that he is being made a scapegoat for internal failings.

Deutsche also stepped in with a pounds 180m cash injection to buy out the suspect securities and ensure the funds could continue trading last September.

Deutsche Bank's chairman, Hilmar Kopper, announced the bank's annual results yesterday, including the cost of the Young saga: "At the moment we have just made provisions. The final calculation of the cost has not been completed but we are expecting it to be DM1.1 to 1.2bn."

"The DM1.2bn [rise in extraordinary expenses] reflects the precautions we took in connection with the damages at Morgan Grenfell Asset Management," he added. "Those are offset by profits from investments of roughly the same amount."

The bank enjoyed a 4.6 per cent increase in 1996 pre-tax profit. Deutsche Bank shares rose 2.5 per cent as investors welcomed its forecast that earnings would rise in 1997, based on trading in the first three months of the year. Deutsche Bank shares closed DM2.3 higher at DM93.70 in Frankfurt.

Operating profit, measured before the MGAM items, soared 38 per cent to DM5.8bn. Analysts had been expecting a hit from MGAM of around DM1bn.

"Near-term, the outlook is positive because the breakdown on the figures is a little better than expected," said Matthew Czepliewicz, an analyst at Salomon Brothers in London. "I think you can also expect them to draw support from pending changes in the tax law."

Georg Kanders, head of finance, banks and insurers at WestLB Research, said that Deutsche Bank's DM1.2bn costs for Morgan Grenfell were "within our expectations. This is a marketing strategy by Deutsche Bank to strengthen their investors' faith. No one got hurt."