Deutsche Bank saw second-quarter profit plunge at its investment bank, hit by the euro zone debt crisis, underscoring the challenge facing its new leaders as they prepare a strategy overhaul.
Pretax profit from investment banking, for years a main profit driver of the Frankfurt-based lender, dropped 63 percent to 357 million euros in the second quarter from 969 million euros in the year-earlier period.
"The European sovereign debt crisis continues to weigh on investor confidence and client activity across the bank," Deutsche Bank's co-Chief Executives Anshu Jain and Juergen Fitschen said in a statement.
Revenues from sales and trading in debt and other products fell even as the bank lowered its risk-taking to correspond with subdued trading volumes.
Deutsche blamed the weak euro for inflating its dollar and sterling cost base, shrinking its second-quarter net income to 661 million euros from the 1.2 billion a year before.
Analysts had forecast a pretax profit of 1.4 billion euros and net income of 1 billion.
The earnings slowdown is in line with U.S. peers said Merck Finck analyst Konrad Becker, "But, in terms of pretax profit, Deutsche looks worse. Costs did not come down at the same pace as revenues."
Deutsche Bank's lower quarterly revenues led the compensation ratio to creep up 2.9 percentage points at 42.3 percent, even as cash bonuses were pared back.
Elsewhere, Swiss rival UBS said earlier on Tuesday its quarterly net profit halved to 425 million Swiss francs on sharply lower trading revenue and a drop in commissions and fees from clients. Germany's second biggest lender Commerzbank late on Monday published preliminary earnings that clearly missed analysts' expectations.
Pretax profit at Deutsche Bank's asset and wealth management arm fell to 35 million euros from 227 million euros a year earlier, after unsuccessful attempts to sell key parts of asset management resulted in an inability to win new business, the bank said.
Deutsche Bank did not say whether it had set aside funds for potential costs related to settling an investigation into suspected rigging of key interest rate Libor and whether it will cut jobs.
Deutsche Bank also said it had completed its full-year funding plan of 15 billion euros.
Deutsche Bank's exposure to the peripheral euro zone countries Greece, Portugal, Spain, Italy and Ireland was stable at 3.9 billion euros, with a 36 percent decrease in Spanish sovereign bond holdings offset by a 29 percent higher holding of Italian bonds, the lender said.
