Deutsche Bank's second-quarter earnings fell short of market expectations as Europe's debt crisis hurt stock trading revenues and led to a euro155 million writedown on bonds issued by Greece.
The bank said Tuesday that its net income during the period rose by only 6 percent from a year ago to euro1.23 billion ($1.79 billion). Over the previous quarter, net profit was down 42 percent from euro2.13 billion.
Diluted earnings per share of euro1.24 cents per share were below the consensus prediction of euro1.35 per share.
Despite lower than expected earnings, the company's shares rose after the earnings report as investors were relieved that the question of who will replace CEO Josef Ackermann has been resolved. Late Monday, the bank said Ackermann will be replaced next year by co-CEOs Anshu Jain, the Indian-born head of its investment bank division, and Juergen Fitschen, currently Deutsche Bank's head of regional management.
Deutsche shares were up 1.1 percent at euro38.60 in morning trading German time.
On the earnings front, the company blamed difficult conditions stemming from the government debt crisis in Europe. In particular, its business in trading equities suffered, with revenue down euro87 million to euro555 million from a year ago, while other businesses such as its branch banking fared better.
Overall second-quarter revenues were euro8.54 billion, shy of expectations of euro8.79 billion.
Trouble from the debt crisis included the Greek writedown ahead of Greece's move to have bondholders accept new bonds that take longer to pay off and bear less interest, meaning losses on the value of their investment. The step, which inflicts an estimated 21 percent loss in value, is aimed at getting the country out of its financial crisis.
The crisis also caused customer trading volumes to drop, the bank said.
Overall, however, the bank reported it has cut its exposure to potential losses from so-called peripheral debt _ shaky bonds from Greece, Ireland, Portugal, Spain and Italy that have been under market pressure due to default fears during the crisis _ by some 70 percent since the beginning of the year, to euro3.7 billion from euro12.1 billion.
The bank also strengthened its capital cushion that could absorb any unexpected losses. Its high-quality capital cushion against losses rose to 10.2 percent from 7.5 percent a year ago.
"Despite increasingly difficult market conditions, our business model has proven to be robust," CEO Josef Ackermann said in a statement.
Ackermann will not be leaving the company even though he steps down from the top job. He will become chairman of its supervisory board, the German equivalent of a board of directors. The bank said the move will allow it to "continue to profit from his knowledge, experience and professional network."
The personnel move solves the succession question but has already raised others, not least about how Jain and Fitschen will divide their responsibilities.
Analyst Stephen Graham of Autonomous Research LLP asked during the conference call how the roles would be split up and how bank would avoid having "a third CEO."
Chief financial officer Stefan Krause, the executive conducting the call, referred the question on Ackermann to the supervisory board and said that Jain and Fitschen's roles would be worked out in the 10 months remaining before the change.
Moving the CEO, responsible for day-to-day business operations, to the supervisory board, which oversees the performance of the management team, has been a common practice in Germany but is discouraged by Germany's corporate governance code.
The code says such moves must be proposed by shareholders with at least 25 percent of voting rights and justified as an exception at the company's annual meeting. The code recommends that former executives wait at least two years before taking board positions.