GERMAN BANKS OUTLOOK CLOUDIER AFTER RECORD 1986
When the largest German "universal"
banks begin announcing 1986 results this week they should
report the third consecutive record year. But prospects for
1987 and beyond would be distinctly cloudier, bank analysts
said.
    Results should show the trend which began this decade was
unbroken. The proportion of earnings gleaned from commission
business should be higher, while the role played by the more
traditional credit lending business would show further erosion.
    Stock exchange volumes remained high last year, depite only
modest share index rises in the year.
 In addition, major banks last year were very active in new
bourse flotations and primary and secondary bond market
business, banking analysts said.
    Despite last week's quite strong rally, the depressed stock
market and forecasts that it would probably not attract
sustained interest from the global investment community made a
downturn in commission business most likely.
    Pressure on the interest rate margin and the increasing
competition posed not only by foreign banks in Germany but by
foreign stock exchanges, particularly London, would also bring
more guarded prognoses for the future from board members.
    But one banking analyst said, "There's obviously no reason
to paint too dark a picture. In this decade so far, the banks
have posted practically only record profits, with increases of
50 pct and more. This cycle must clearly end sometime."
    One problem more psychological than real was West German
banks' exposure to Latin American debtor nations. Bank
officials have said that a good 70 pct of the exposure has been
written off on balance sheets.
    Some analysts consider that the conservative accounting of
German banks may in some cases have prompted the writedown of
80 or even 100 pct of several exposures there.
    With almost all Latin American exposure denominated in dlrs
and written down two or three years ago, the U.S. Currency's
fall has made further allocations to country risk reserves for
the region virtually unnecessary.
    "German bank earnings have become much more dependent on
developments on the stock exchange than on the debt question," a
second analyst said.
    It is precisely because of bank reporting rules that allow
the build up of "hidden" reserves known only to the Bundesbank,
that few analysts produced precise earnings forecasts as they
did for corporate non-banks.
    But Alastair France, of London brokers Alexanders, Laing &
Cruickshank, said his clculations showed that Deutsche Bank AG
<DBKG.F> would report a very strong 1986, boosted&by
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industrial empire, followed by a fairly strong drop back this
year and flat earnings in 1988.
    This contrasted with Dresdner Bank AG <DRSD.F> and
Commerzbank AG <CBKG.F> whose earnings would drift fractionally
lower this year and then rise modestly in 1988. On the German
DVFA basis, Deutsche should report 59 marks per share in 1986
and 49 marks in both ensuing years, France said.
