April 30 (Bloomberg) -- Deutsche Bank AG, Europe's third- largest bank by assets, reported its biggest quarterly profit in at least three years, boosted by stock and bond trading.

First-quarter net income totaled 941 million euros ($1.13 billion), or 1.67 euros a share, compared with a loss of 219 million euros, or 37 cents, a year ago, Deutsche Bank said on its Web site. Revenue rose 23 percent to 6.15 billion euros.

Deutsche Bank, which has shed a quarter of its staff to cut costs, is benefiting from a surge in trading that led U.S. firms such as Morgan Stanley to post record earnings. Chief Executive Josef Ackermann, 56, said the Frankfurt-based bank is making ``good progress'' toward reaching its return on equity goal.

The bank ``delivered superb figures,'' said Thomas Koerfgen, a fund manager at Frankfurt-based SEB Invest GmbH, which oversees the equivalent of $10 billion including Deutsche Bank stock. ``It's clear, though, the company still needs to control costs.''

Deutsche Bank shares fell 1.60 euros, or 2.3 percent, to 68.70 euros at 9:32 a.m. in Frankfurt, after the bank said costs rose 2 percent to 4.5 billion euros. Analysts surveyed by Bloomberg had forecast a 7 percent decline in costs.

The increase in expenses reflects bonus accruals ``consistent with strong business performance,'' the bank said.

Highest Since 2001

Net income beat the 861 million-euro median forecast of 19 analysts surveyed by Bloomberg. Trading profit increased 14 percent to 2.04 billion euros, while fee and commission income rose 4 percent to 2.4 billion euros from 2.3 billion euros.

The earnings are the highest Deutsche Bank has reported since at least the first quarter of 2001, when it started reporting under U.S. generally accepted accounting principles.

Credit Suisse Group, Switzerland's second-biggest bank, said today first-quarter profit rose to 1.8 billion Swiss francs ($1.4 billion) from 279 million francs. ABN Amro Holding NV, the largest Dutch bank, posted a 35 percent profit increase on Wednesday. Commerzbank AG, Germany's No. 3 bank, on Monday reported its highest earnings since the third quarter of 2000.

Deutsche Bank's pretax profit surged to 1.6 billion euros from 234 million euros. The bank set aside 123 million euros for bad loans, compared with 380 million euros a year ago. Interest income rose to 1.39 billion euros from 1.31 billion euros.

`Challenging Goals'

``I remain confident that with continued stability and positive development in the global economy and the world's financial markets, we will maintain this progress and deliver on the challenging goals we have set ourselves,'' Ackermann said in the statement posted on the company's Web site.

Ackermann wants to raise annual pretax earnings excluding one-time items to 6.5 billion euros in the next two years by boosting revenue, cutting costs and lowering loan loss provisions. That should help him meet a pretax return on equity target of 25 percent, compared with 13 percent in 2003.

Deutsche Bank's underlying pretax return on equity, which strips out one-time items such as gains from asset sales, rose to 22 percent in the quarter from 13 percent in the year-ago period.

Keeping a lid on costs ``may prove difficult, especially given how quickly aggressive hiring practices appear to have returned to the investment banking market,'' Goldman Sachs analyst Richard Ramsden said in a note to investors before the earnings were released. More costs could result from investing in the securities businesses in the U.S., he said.

Investment Banking

Deutsche Bank last September said it plans to lend more in the U.S. and hire bankers as it tries to win more of the $27.4 billion in investment-banking fees generated there. The bank wants to boost its market share to 8 percent from 5 percent, Michael Cohrs, global head of corporate finance, said then.

Pretax profit at the corporate and investment bank fell to 1.2 billion euros from 1.4 billion euros after a 508 million-euro gain wasn't repeated. Stripping out last year's gain, pretax profit at the division climbed 22 percent, the company said.

The bank's fixed-income business was helped by demand for derivatives and as it sold more products to clients in the asset management and retail banking unit, the company said. Debt sales and trading rose to 1.9 billion euros from 1.77 billion euros.

Deutsche Bank overtook New York-based Citigroup Inc. as the top underwriter of international bonds in the first quarter, underwriting $65 billion of debt sales, data compiled by Bloomberg show. It's No. 1 in European high-yield bond sales.

Equities

Equity sales and trading and stock underwriting, meanwhile, ``made substantial progress both in Europe and North America,'' Deutsche Bank said. Equity sales and trading rose 32 percent to 786 million euros. Stock underwriting increased to 130 million euros from 48 million euros in the same period a year ago.

Global equity and equity-linked underwriting surged more than threefold to $140 billion in the first quarter, according to Bloomberg data. Deutsche Bank moved up three places to rank sixth in global equity underwriting in the quarter.

Deutsche Bank is trying to expand in retail banking, where revenue is more stable than in investment banking. Pretax profit from consumer banking doubled to 255 million euros in the quarter as costs and risk provisions fell. The bank reiterated a full- year pretax profit goal for the division of 1 billion euros.

Pretax profit excluding one-time gains at the asset and wealth management unit rose 54 percent to 155 million euros as revenues at the DWS German mutual fund business increased.

Deutsche Bank shares fell 1.4 percent to 70.30 euros yesterday. The stock has risen 58 percent in the past year, compared with a 38 percent increase on the Bloomberg Europe Banks and Financial Services Index. The Dow Jones Stoxx 50 Index, tracking 50 European blue-chip stocks, has risen 27 percent.

The bank holds a conference call for analysts hosted by Chief Financial Officer Clemens Boersig at 9 a.m., German time.

To contact the reporter on this story: Vita Bekker in Frankfurt at vbekker@bloomberg.net.

Last Updated: April 30, 2004 03:37 EDT