Deutsche and Merrill latest credit victims

Deutsche Bank on Wednesday became the latest big investment bank to announce losses worth billions of dollars as a result of the recent credit turmoil.

Deutsche’s announcement came as Osman Semerci, head of fixed income trading at Merrill Lynch, became the latest high-level casualty of the credit squeeze.

Mr Semerci, who was based in London, left the company on Wednesday after a sharp downturn in trading, which some analysts expect to result in a $1.5bn (£740m) loss from fixed income trading in the third quarter.

Mr Semerci, is being replaced by David Sobotka, head of commodities trading, who is moving from Houston to New York.

In common with other Wall Street banks, Merrill has generally been shifting more responsibility to executives outside the US. But it said on Wednesday that it did not appoint executives based on their location.

It also emerged that Dow Kim, former co-head of Merrill’s markets and investment banking business, had left. Mr Kim, based in New York and who oversaw all Merrill’s trading businesses, announced in May that he planned to leave at the end of the year to set up a hedge fund. Merrill will not now be investing in the fund as had been expected.

Merrill has been a leading originators of collateralised debt obligations – often composed of subprime mortgages. Insiders say it continued producing the securities even as investors’ appetite waned, leaving it with a large inventory it has had to mark down.

Shares in Deutsche closed up 2 per cent as investors welcomed clarification of the losses.

The German bank said its investment banking unit would post a third-quarter pre-tax loss of up to €350m (£242m), after €2.2bn of charges relating to leveraged loans, structured credit products and trading.

Deutsche also said that third-quarter net profits for the group would top €1.4bn and reiterated its pre-tax profits target for 2008. However, Jeremy Sigee, analyst at Citi, said the announcement represented a profit warning.

Deutsche’s clarification of its exposure to the credit crisis came in the wake of Monday’s profit warnings from rivals Citi, UBS and Credit Suisse. These have given investors mounting confidence that it is now possible to measure the financial cost of the crisis and identify the survivors.

Josef Ackermann, chairman of Deutsche’s management board, said the group saw “substantial opportunities in investment banking after this period of ­correction”.

The comments were made ahead of an investor conference hosted by Merrill Lynch in London, where Brady Dougan, chief executive of Credit Suisse, echoed Mr Ackermann’s optimism by predicting that his bank could gain market share from rivals once the credit squeeze eased.

Deutsche’s clarification came in the wake of Monday’s profit warnings from rivals Citi, UBS and Credit Suisse. These have given investors confidence that the financial cost of the credit squeeze is becoming measurable after weeks of uncertainty.

UBS and Credit Suisse both closed up by more than 1 per cent on Wednesday.

Robert Law, banks analyst at Lehman Brothers, said: “One of the biggest issues with the sector has been that people haven’t really known where these exposures are, and how much they are.”

Additional reporting by Peter Thal Larsen in London and David Wighton in New York