PRETAX PROFITS at Deutsche Bank, Germany's largest lender, plunged 94 per cent in the third quarter to just € 93 million - after adopting liberal EU accounting rules.
The bank avoided posting a loss thanks to an EU regulation that allows companies to avoid valuing assets at current market rates - so-called "mark-to-market" valuations.
Deutsche's stock rose 20 per cent, its biggest gain in 16 years in Frankfurt, on the news that, by changing its accounting practices, it had spared itself about € 900 million worth of red ink.
"The third quarter 2008 was characterised by a considerable intensification of the credit crisis in September," said Deutsche Bank chairman Josef Ackermann, referring to the wave of financial chaos spurred by the collapse of Lehman Brothers.
By adding in tax credits, the bank's post-tax profit for the quarter rose to € 414 million, compared to € 1.4 billion in the same period last year.
Germany's largest lender said it was holding on to more of its money to support its own operations, reflected in a one-point rise to 10.3 per cent in its Tier 1 capital ratio.
Mr Ackermann predicted a further "significant decrease in profitability" in 2009, thanks to slowing euro zone economies and investors' demands for more conservative equity-to-debt ratios.
"The process of de-leveraging - which also reduces the ability to lend - has just started and is expected to extend over several quarters likewise contributing to a significant decrease in profitability," he said.
The bank's investment banking arm made a loss of € 789 in the third quarter, he said, while the bank would write off a further € 1.2 billion. Mr Ackermann said the executive committee and supervisory board would do without their bonuses this year.
Despite staying in the black, Deutsche Bank will remain under scrutiny to see if it joins other private banks in requesting liquidity from Germany's emergency fund.
Until now Mr Ackermann has refused to dip into the pot, even reportedly telling banking colleagues that he would be "ashamed" to do so.
Bosses of Germany's leading banks, who have so far held back from applying, are understood to be discussing a joint action in the hope of preventing severe punishment from the stock market.
The state bailout of banks has divided the country: a survey released by the Allensbach institute yesterday found 37 per cent of people in favour of bailing out banks, while 34 per cent favoured letting them fail.
