FRANKFURT (Bloomberg) - Deutsche Bank AG, Germany's biggest bank, reported a 48 percent increase in first-quarter profit as record earnings at the investment bank outweighed a loss from asset and wealth management.

Net income rose to 1.76 billion Euros ($2.35 billion), or 2.66 Euros a share, from 1.19 billion Euros, or 1.92 Euros, in the year-earlier period, the bank said yesterday. Deutsche Bank fell five percent in Frankfurt trading as European stocks tumbled following credit-rating downgrades of Greece and Portugal.

Pretax profit at the unit, led by Anshu Jain and Michael Cohrs, doubled to 2.6 billion Euros, accounting for more than 90 percent of overall earnings. While chief financial officer (CFO) Stefan Krause said the second quarter got off to a "good start", he added that the first quarter should not be extrapolated to the full year.

"This extraordinarily strong result is almost entirely due to investment banking, which is not sustainable and probably can't be repeated this year," said Olaf Kayser, an analyst at Landesbank Baden-Wuerttemberg in Mainz, Germany, who has a "buy" rating on the stock. "The results of the other divisions leave something to be desired."

Deutsche Bank dropped 2.76 Euros, or five percent, to 52.59 Euros. The stock has risen 6.4 percent this year, compared with a 1.9 percent decline in the 52-member Bloomberg Europe Banks and Financial Services Index. The index fell the most today since February 4.

The bank booked writedowns of 241 million Euros in the quarter, down from 1.5 billion Euros of markdowns on bond insurers and the Cosmopolitan Resort & Casino in Las Vegas a year earlier. The first quarter also included costs of 120 million Euros for the UK bank bonus tax.

Deutsche Bank's global markets business, run by Jain, 47, had trading income from debt and other products of 3.8 billion Euros, compared with the three billion-Euro estimate of analysts and almost unchanged from last year. Equity trading revenue rose to 944 million Euros, beating estimates.

US competitors including Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. reported record debt trading earlier this month. Deutsche Bank has an "overall positive outlook" for the investment bank, it said yesterday.

Pretax profit at the corporate and investment bank, which includes transaction banking, rose 75 percent to a record 2.71 billion euros on higher sales and trading as well as gains in debt and equity origination, according to Deutsche Bank.

"Over 90 percent of the bank's profits came from corporate banking and securities, which shows how vulnerable the bank is to the debate about the future of investment banking," Helvea Ltd. analyst Peter Thorne said in a note to investors yesterday.

JPMorgan analyst Kian Abouhossein in London said in a report that "the quality of results was low", adding that Deutsche Bank "is a pure investment bank".

Deutsche Bank's asset and wealth management unit had a pretax loss of five million Euros on costs tied to the integration of Sal. Oppenheim Group and retirement expenses. That missed the analysts' average estimate for a 111 million-Euro profit.

Earnings at the consumer bank fell eight percent to 189 million Euros, while profit from transaction banking slumped 48 percent to 119 million Euros, missing analysts' estimates.

"The stable businesses continue to disappoint," Citigroup Inc. analysts led by Kinner Lakhani said in a report.

"We succeeded in generating these outstanding results even though we have massively scaled down our proprietary trading activities and dramatically reduced our risk positions since the outbreak of the crisis," CEO Josef Ackermann said in a letter to shareholders.

Deutsche Bank has not received a Wells notice, a letter the US Securities and Exchange Commission (SEC) sends out when it plans to pursue a lawsuit. Subpoenas received by the bank that were mentioned in the company's first-quarter report today are not related to "current issues," CFO Krause said when asked whether they are connected to the SEC fraud suit against Goldman Sachs.

"We have done an internal review of our transactions," Krause said. "We don't see that we have any similar situation than the one that is being discussed," he added, responding to a question about the SEC-Goldman Sachs case.

JPMorgan, Bank of America and Goldman Sachs beat analysts' estimates for first-quarter earnings, helped by debt trading, while UBS AG posted the highest pretax profit in almost three years, in part because of a recovery at its fixed-income unit. Credit Suisse Group AG last week fell the most in more than two months in Zurich after missing a gain in debt trading that helped lift earnings at rivals.

Deutsche Bank set aside 50 percent less money for possible loan defaults, citing "improved credit conditions".

The investment banking unit's implied compensation ratio was an estimated 33 percent, which would be the lowest in the industry so far, JPMorgan's Abouhossein wrote today. Deutsche Bank's full-year compensation ratio will likely remain at the same level as the first quarter or slightly rise as the company pays "competitively," CFO Krause said on a conference call.

Krause, 47, said the bank is sticking with a pledge to double pretax profit at the operating businesses by 2011 to 10 billion Euros from 2009, helped by gains in investment banking and Asia.

Ackermann, 62, has been seeking to reduce dependence on the investment bank by making acquisitions. Deutsche Bank completed the purchase of Sal. Oppenheim, Germany's biggest independent private bank, and parts of ABN Amro Bank NV's commercial lending activities in the Netherlands this year. It also bought a stake in Deutsche Postbank AG and has an option to raise the holding.

Postbank fell as much as 5.3 percent in Frankfurt trading after Krause said there is "no hurry" to raise the stake.

New rules on over-the-counter derivatives, capital requirements and a planned levy to finance bank rescues may cut Deutsche Bank's net income by 13 percent, Citigroup analyst Kinner Lakhani wrote in a report on April 20.

Deutsche Bank is "fine" on the capital side and has sufficient capital to comply with expected requirements from regulators, Krause said yesterday. The introduction of new rules is likely to be delayed and implemented gradually, though stricter-than-expected proposals for derivatives oversight have forced the bank to adjust internal assessments of the impact, he said.