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. Last Updated: 07/27/2016

Deutsche Bank's Q1 Profit Soars

FRANKFURT -- Trading income lifted profit at Deutsche Bank to a record high in the first three months of the year as it became the latest bank to ride the wave of buoyant capital markets.

A jump in income from trading shares, bonds and other securities boosted net profit by more than half to 1.7 billion euros ($2.15 billion) and puts Germany's largest bank on track to repeat last year's record performance in 2006.

But stock market investors, often skeptical about Deutsche's reliance on the markets, gave the news a lukewarm response. By midmorning Wednesday the shares were up 0.44 percent at 97.66 euros, erasing earlier gains, against a flat German blue-chip DAX index.

"The reaction in the market to Deutsche's results is always that it is all capital markets driven -- it was a good quarter, but what happens in the next? And they have a point," said Konrad Becker, an analyst with Merck Finck.

"But despite the limitations of trading income, this is still a massive start to the year. It is much better than I expected and across all business areas," Becker added.

Deutsche Bank saw its trading income rise by almost one-quarter to nearly 3 billion euros, trumping the 2.3 billion euros expected by analysts.

One of the bank's strengths is a highly successful fixed income trading operation.

"The strength of fixed income at Deutsche never ceases to surprise me. It is a phenomenal business and is steaming along with a very strong brand," said a London-based banking analyst who asked not to be named.

The bumper result was further evidence of the strong global markets that have already lifted trading income this year at U.S. financial giants such as Merrill Lynch and Swiss rival Credit Suisse.

Credit Suisse's share price rose only modestly after strong earnings because of similar worries. "In the short term these results are sustainable, but probably not in the long term," said Banque Syz & Co analyst Jerome Schupp, referring to Deutsche.

With the first quarter's result, Deutsche also beat its aim of a pretax return on equity of about 25 percent.

This profit measure hit 40 percent in the first three months, prompting Deutsche's finance chief, Clemens Boersig, to say he was confident about hitting the target for the year.

This may reassure investors who were skeptical that Deutsche Bank's record 6.4-billion-euro profit last year can be repeated.

"This is an exceptional result," said Olaf Kayser, an analyst with Landesbank Rheinland-Pfalz. "There can be no doubt that the return on equity goal will be met this year."

Despite Deutsche Bank's strong profits, investor enthusiasm in the past has been dampened by worries that it is over-reliant on investment banking and its retail bank at home remains weak.

"The big downside is that it [Deutsche Bank] is still very heavily skewed toward investment banking, and people will put a different multiple on that than on asset management or wealth management. That is an issue," said the London bank analyst.

Deutsche's shares lagged the DAX index last year when the bank's stock price jumped by one-quarter.