Tuesday, July 28, 2009

Zooming In The Earnings Momentum of Deutsche Bank

I have posted a bit on earnings momentum recently, that is assumed to be driving the market. Deutsche Bank is the second best stock among DJ EuroStoxx50 constituents year-to-date with a gain of almost 87% as of close yesterday.

Bloomberg reports today:
July 28 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest bank, said second-quarter profit rose 68 percent as increased revenue from trading bonds and stocks offset a surge in loan- loss provisions.
The bank posted a second straight quarterly profit after reporting its first annual loss in more than 50 years in 2008 amid the worst financial crisis since the Great Depression. In the second quarter, sales of corporate debt in Europe rose 12 percent from a year earlier to 329 billion euros, data compiled by Bloomberg show.

Well, it is assumed they posted a second straight quarterly profit ... "net income for the quarter was EUR 1.1 billion".

Let's look at the earnings release. It is quite difficult to read the report till you get to the page 56, where the "optical illusion of profits" is disclosed. The difference between "Carrying value" and "Fair value" is almost EUR 6 billion, just 17% of reported "Total Equity". Click to enlarge!

Stunning earnings momentum! Well, the 2nd quarter was better indeed, as no new reclassifications were made ... in fact, it is more about the solvency than earnings momentum.

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