rose a slender 1.3% during the third quarter as it swallowed increased administrative costs from its June acquisition of Bankers Trust Corp.
The $891 billion-asset company reported net income of $82.2 million, a slight increase from $81.2 million a year earlier.
Helped by advances in its securities and asset management business, commissions were the biggest contributor to net income, increasing 66.5% year-over-year, to $2.2 billion. Profits from trading rose to $1.13 billion, from a loss of $122.8 million last year.
Investment banking bonus payments and other costs from integrating Bankers Trust offset those advances, however, and expenses jumped 76%, to $4.3 billion. Excluding costs from retention packages for Bankers Trust employees, the German bank's cost/income ratio rose to 83% in the quarter, from 74.5% in the second quarter -- a troubling sign, according to some analysts.
"If this is what the bank does in a bull market, what will it do in a bear market?" said Evangelos Kavouriadis, a banking analyst at Sanford C. Bernstein & Co. Mr. Kavouriadis has a "hold" rating on the stock.
The results reflect Deutsche's strategy of being both a pan-European and a global investment bank, which is an expensive undertaking, he added. "The problem is, to build global investment banking you have to pay a lot of premiums, and you don't get a great return on your investment," Mr. Kavouriadis said.
Earnings from Bankers Trust units were consolidated with those of Deutsche Bank, making it difficult to gauge how much the old U.S. company contributed. In some of Bankers Trust's areas of strength, there are signs the combined company is lagging. In one such area, that of high-yield underwriting, Deutsche Bank's overall market share dropped to 1.2% in the third quarter, from 2.5% in the second, according to Thomson Financial Securities Data.
Even so, operating profits of $2.8 billion for the first nine months have already surpassed results for full-year 1998. Despite the third-quarter hiccups, some analysts remain convinced that Deutsche made the right long-term move in buying Bankers Trust.
"The bank needs to bring costs down, but you can't just look at costs," said Christoph Ritschard, a banking analyst for Zurcher Kantonalbank in Zurich. Mr. Ritschard regards the Deutsche as a pacesetter for other German and European banks and said its third-quarter results were in line with his expectations.
"In terms of its strategy, trading and investment banking will be the highest contributor to results" over the long term, he said.
Net interest income increased 17%, to $1.8 billion. Provision for losses on loans and advances dropped 48% year-on-year, to $138 million, because of lower country risks.
In a press statement, the bank said it expects good full-year results "provided market conditions remain stable."