Deutsche Bank:  When other banks were taking painful write-downs on their stockpiles of toxic assets at the height of the crisis, Deutsche Bank opted instead for the “pay me later” approach. Later has now arrived.

The German lender’s second-quarter results were good, buoyed – like those of so many of its rivals – by the active market for trading bonds. But the performance missed greatness. And that had a lot to do with the after-effects of the nifty crisis management that helped Deutsche avoid the state’s embrace.

Deutsche’s corporate and investment banking division produced an 84 percent rise in revenue, even as the bank boosted capital ratios, slashed risk and reduced borrowing. True, market risk – on the standard value-at-risk measure – ticked up. But Deutsche cut its most illiquid and hard-to-value loans by some 20 percent. The leverage ratio fell to 24, from 28 at the end of 2008.

The headline figures were flattered by a lighter tax rate and the harvesting of some investments, including derivatives associated with last year’s acquisition of a stake in Deutsche Postbank. Private banking and asset management swung to a loss. But investors will probably see these as niggles when investment banking is doing so well.

Rather, it’s the €1 billion of loan provisions – more than seven times as much as last year – that are the real concern. Deutsche avoided applying market valuations to a whopping €38 billion of assets during the crisis, by shifting them off its trading book using a change to international accounting standards. The move preserved capital and was part of a broader strategy to maintain Deutsche’s independence.

Troubled loans accounted for 3.1 percent of the bank’s total book in the second quarter – a full percentage point more than in the prior three months. Half of the provisions were for the reclassified assets. While this mainly relates to just two counterparties, it still looks like Deutsche is paying a kind of deferred tax on recovery.

The future of trading revenues is uncertain and the global economy is still shaky. The added burden of delayed credit losses could mean that while Deutsche navigated the crisis better than most, it will feel it for longer too.

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Deutsche Bank reported an increase in second-quarter net profit of 68 percent to €1.1 billion. The results were powered by debt trading.

The bank said provisions for credit losses rose to €1 billion in the quarter from €135 million a year ago and €526 million in the first quarter.

“In conditions which contained both opportunities and challenges, Deutsche Bank turned in very satisfactory results,” chief executive Josef Ackermann said. “The outlook for the remainder of 2009 is strongly influenced by progress in the global economy. In an uncertain environment, Deutsche Bank is well prepared.”

Deutsche’s Tier 1 capital ratio increased to 11 percent and, excluding hybrid instruments, was 7.8 percent. Risk-weighted assets decreased by €21 billion, or  percent, to €295 billion.

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