Remember Macquarie Group’s profit warning earlier this month (September 6)?
How a lot of investors and analysts thought it represented a problem peculiar to Macquarie?
Well, it’s not the only canary in the banking sector to start warbling a mournful tune.
Unfortunately the tune is not what investors want to hear, because it’s all about falling revenues, earnings under pressure (and therefore employment).
German giant Deutsche Bank has now issued a profit warning similar to Macquarie’s.
As a result Deutsche Bank shares were sold off on Wednesday night after it warned of a fall in its third quarter result.
The news comes as analysts in the US and Europe start lowering their third quarter earnings estimates for the big banks of Wall Street and Europe.
They are expecting major banks to issue updated guidance late next week or in the week after ahead of reporting their third quarter results from the middle of October onwards.
Falling revenues this year, and high earnings in the third quarter of 2009, will produce sharp falls in 2010 reports.
Deutsche Bank, Germany’s biggest bank, saw its shares fall more than 8% after it issued a profit warning and launched the already known 10.2 billion euro rights issue aimed at funding its takeover of Postbank.
Deutsche Bank already owns nearly 30% of Postbank, but it said third quarter earnings would be materially affected by its purchase of the Postbank shares, for which it will pay 25 euros each share.
But the warning was more than that and European analysts pointed out that the substantive part of the warning was buried in the prospectus for the rights issue, not produced separately.
That read: "As of the date of this Securities Note, Deutsche Bank’s financial position and liquidity have not materially changed since June 30, 2010.
"In July and August 2010, Deutsche Bank’s Corporate Banking & Securities (CB&S) businesses saw the usual seasonal reductions in sales & trading revenues, although these were more marked than in the comparable third quarter of 2009, given ongoing market uncertainties.
"Investors remained nervous and uncommitted in the absence of clear market direction, continuing the trend which started in the middle of the second quarter of 2010 triggered by concerns about the public finances of some eurozone countries.
"Comparable to the development in the second quarter 2010, origination and advisory revenues were also proving weaker in July and August 2010 with considerably lower levels of equity and debt issuances.
"Revenues recovered in September 2010 up to the date of this Securities Note, partly compensating for the declines experienced in July and August. Noninterest expenses in CB&S were higher compared to the levels in the third quarter 2009, reflecting increased expenses related to reorganization activities, IT investments and other strategic initiatives.
"CB&S’ income before income taxes in the third quarter 2010 may thus be substantially below the level of the prior year quarter. (My emphasis).
"Income before income taxes in the Asset and Wealth Management Corporate Division declined in July and August 2010 compared to the corresponding months in 2009, primarily due to ongoing charges related to the reorganization and de-risking of the Sal. Oppenheim Group.
"In the Global Transaction Banking and Private & Business Clients Corporate Divisions, income before income taxes was in the first two months of the third quarter 2010 higher than in the respective period in 2009 despite the expected seasonal slowdown in the summer months, although these increases have not been sufficient to offset the declines in other Corporate Divisions.
"Based on carrying values as of June 30, 2010 and a fair value of the Postbank share assumed to be 25 euro per share a charge to Deutsche Bank Group’s consolidated net income (and thus also to retained earnings and total shareholders’ equity) would likely result in the amount of approximately 2.3 billion euros in the third quarter of 2010. Such a charge will have a material adverse effect on Deutsche Bank’s net assets, financial condition and results of operations."
So without the big, 2.3 billion euro write-down for Postbank, Deutsche Bank, which is a major player on Wall Street and in the US (and second after Barclays among the foreign banks), says it’s facing the prospect of lower earnings in the third quarter in its most important businesses, Corporate Bank and Securities.
And go back and take a look at what Macquarie said in its profit downgrade on September 6:
"Uncertain market conditions are continuing to make short-term forecasting very difficult; Market conditions are significantly impacting activity levels in Macquarie Securities, Macquarie Capital and Fixed Income, Currencies and Commodities; and FY11 result continues to be impacted by the cost of our continued conservative approach to funding and capital.
"Since Macquarie’s AGM on 30 July, conditions in most markets have continued to be weak, adversely impacting business activity levels
"Despite market conditions remaining uncertain, which makes short-term forecasting very difficult, we currently an
