FRANKFURT, January 28: Deutsche Bank AG on Wednesday became the first German bank to admit the Asian crisis was causing it serious pain, warning that its exposure to the region would cut 1997 operating profit by a third.Deutsche said it was setting aside 1.4 billion marks ($777.3 million) to cover the risks of what it said was a nine-billion mark exposure to South Korea, Thailand, Malaysia and Indonesia.
The bank, Germany's largest, also said it would set aside 2.5 billion marks in its 1997 accounts for a three-year reorganisation that will prepare it for the next millennium.
Deutsche said it would provide details of the revamp later in the day.Deutsche's share price initially tumbled on the news, falling as much as 3.7 per cent to 106 marks at the opening of pre-bourse electronic trade before recovering to trade up 1.40 marks at 111.50 marks at 0905 GMT.
The bank recently said it was considering merging its investment bank operation with its corporate banking activities and may drop the DeutscheMorgan Grenfell tag it gave its London-based investment bank operation three years ago.
Deutsche on Wednesday also announced that it would pay an unchanged dividend of 1.80 marks, contrary to expectations by analysts for an increase to two marks, and said its dividend payout would swallow up its entire 1997 net profit.
The risk provision news unsettled investors and surprised analysts who had expected a smaller impact given that banks had down-played the effect of Asia on their results in recent weeks.
Germany's other top banks, especially Commerzbank AG and Dresdner Bank AG, are now expected to follow suit.
Commerzbank will release core 1997 earnings in February, followed in late February by Dresdner.
``The size of Deutsche's risk provision is twice as much as I had expected and I fear similar news from the other banks. It doesn't look too good for the bank sector,'' said banking analyst Markus Strigl at Trinkaus & Burkhardt.
But he added: ``One positive thing is that Deutsche is packing allits risks into 1997 and is thereby giving itself a big cushion.'' Strigl said he was maintaining his ``hold'' recommendation as a result.Deutsche said: ``Mainly due to the Asia risk that became recognisable in the fourth quarter of 1997 an additional risk provision of 1.4 billion marks will be set aside.
``Especially due to this the group operating profit will be about one third lower than in the previous year.''
The bank said its three-year reorganisation was aimed at achieving a lasting increase in the bank's value and to prepare the group for the changing environment at the beginning of the new millennium.
Analysts said Deutsche's chief executive Rolf Breuer, who took over from Hilmar Kopper last year, had clearly decided to make a clean sweep by lumping all costs and charges into 1997.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
