Sub-prime losses at Deutsche Bank

Deutsche Bank said Wednesday that it would write off about $3.1 billion in losses from the U.S. mortgage morass, but that gains from asset sales and tax credits would allow Germany’s biggest bank to report a third-quarter profit of nearly $2 billion.

In the face of the write-down, the latest to hit major banks in the U.S. and Europe, Chief Executive Josef Ackermann remained upbeat about the bank’s future.

“Despite a challenging quarter for our investment banking franchise, our stable businesses continue to perform well,” he said. “We see substantial opportunities in investment banking after this period of correction.”

The news sent Deutsche Bank shares higher Wednesday to $135.04, up $2.67, or 2%.

Deutsche Bank said in a statement that it would take a charge of about $2.1 billion on residential mortgage-backed securities and structured credit products and as much as $991.6 million on its leveraged loans and loan commitments.

The troubles at the German bank underscore the widespread fallout of failed U.S. loans to people with weak credit, also known as sub-prime mortgages. Similar write-downs are hurting other big banks, including Citigroup and UBS, though analysts believe investors and not account holders will feel most of the pain.

Still, Deutsche Bank expects third-quarter profit to hit about $2 billion, higher than a year earlier, and reiterated its goal of posting a pretax profit of $11.9 billion for 2008.

The bank plans to release its third-quarter results Oct. 31.

Cubillas Ding, senior analyst at Celent, an international financial research and consulting firm, said Deutsche Bank’s announcement was significant.

“But over the past few weeks, the market seemed to have factored in expectations of bad news after a string of them in the past two weeks,” he said. “However, after bruising results from some of its peers, Deutsche’s latest quarter falls into the ‘better than expected’ category.”

The credit market turmoil began with rising defaults in the United States on sub-prime mortgages but spread because banks had repackaged those loans with more reliable ones and sold them to a wide range of investors, including several European banks. Credit dried up in early August, roiling financial markets, as banks became wary of exposure to the risky loans.