Company Reports

Deutsche Bank reported a good first quarter. Profit before tax rose 10% to EUR 2 billion, while return on average tangible equity came in at 8.7%. The cost/income ratio improved to 68% from 71% last year. The improved efficiency was due to good revenue retention and cost improvements. We maintain our EUR 13 per share fair value estimate and no-moat rating.

Deutsche Bank reported fourth-quarter 2023 profits before tax of EUR 698 million, 10% lower than a year ago, when the bank posted an exceptionally strong quarter. Deutsche did disappoint relative to consensus estimates collected by the bank itself on revenue of EUR 6.658 billion (2% below consensus estimates) and adjusted costs of EUR 5.305 billion (3% above consensus estimates). The reasons were a still weak backdrop for the investment bank and its fixed-income trading operation as well as the asset management segment performing below expectations. We maintain our fair value estimate of EUR 13 per share and no economic moat rating.

Deutsche Bank is reported to be hiring again for its increasing ambition in investment banking. We have been critical of such moves in the past and continue to see risks that Deutsche will move its focus from a self-proclaimed "Hausbank" toward ambitions of becoming an investment banking powerhouse again. We believe rounding out its capabilities around its corporate finance offering makes strategic sense to strengthen its client relationships. However, we fear that Deutsche may not stop there but will eventually aim for a top spot within global investment banking league tables.

Deutsche Bank has successfully halted the detrimental spiral of faster declining revenue. In the process, the bank has shed its global equities sales and trading business, downscaled its fixed income trading business, and materially reduced its workforce. The bank now focuses on its core basics, providing services to its customers globally within its corporate banking, private banking, investment banking, and asset management segments.

Deutsche Bank reported second-quarter profit before tax of EUR 1,405 million, slightly behind the same quarter a year ago (EUR 1,547 million). The quarter was good, nonetheless. Deutsche Bank showed good growth in the corporate and private bank, two segments that are core to Deutsche's strategy if it wants to reduce its exposure to the often volatile investment banking business. The latter saw revenues decline 11% in the quarter, largely driven by lower revenues in rates, foreign exchange, and emerging markets. We maintain our EUR 12.90 per share fair value estimate and no-moat rating for Deutsche Bank.

First-quarter profit before tax at Deutsche Bank of EUR 1,852, which was up 12% versus the same period a year ago, was good. The bank showed a good performance in the corporate bank and the private bank, while the investment bank recovered from a poor performance in the last quarter of 2022. Return on tangible equity of 8.3%, a 13.6% common equity Tier 1 ratio including a 250-basis-point buffer above minimum requirements, and shareholder distributions including share buybacks potentially in 2023, are a show of strength after a quarter that we believe the Deutsche Bank of just a few years ago may not have withstood. We maintain our EUR 12.90 per share fair value estimate and no-moat rating.

Stress has returned to the European banking system less than a week after a solution for Credit Suisse had been announced. Shares in European banks have traded down through March 24 around midsingle digits, with Deutsche Bank taking the brunt of it, down 15% at its lowest point intraday. We maintain our fair value estimates and moat ratings across our European banking coverage. Allianz remains our Best Idea. Admiral is one of our top picks

With Credit Suisse shoring up liquidity, concerns around a banking crisis spreading in Europe have been firmly planted. While we expect that the next days and weeks will remain volatile, we do not currently see a liquidity crisis spreading through the European banking system. The issues at Credit Suisse are idiosyncratic in nature and we believe containable for now even in a worst-case scenario. With capital and liquidity levels high across the board, asset quality still good, and regulators much better equipped than 15 years ago to quell any sparks, we believe European banks are solid. The major caveat being that developments are currently happening at a rapid pace and views we form today may be stale tomorrow. We believe investors are best placed in European banks with a greater retail focus and a sound profitability outlook. We would highlight BBVA, Handelsbanken, ING, and Lloyds.

We do not believe investors should view the collapse of U.S.-based Silicon Valley Bank as a read-through of the health of European banks' balance sheets. Nevertheless, banks remain highly reliant on the confidence of depositors and other funders. It would be foolish to say there is no contagion risk for European banks, especially if other global banks run into trouble. The current uncertainty could also push up the cost of funding and increase the rate at which European banks pass on higher interest rates to depositors. But we believe it is vital for investors to take note of the contrasts between European banks' and SVB's balance sheets.

No-moat Deutsche Bank reported fourth-quarter profits before tax of EUR 775 million, versus consensus expectations of EUR 1.116 billion. Despite this miss, Deutsche Bank is making progress toward its overarching goal of building a more profitable bank. Excluding its capital release unit, profit before tax grew 37% to EUR 6.5 billion, driven by 7% revenue growth and a 3% smaller cost base. We increase our fair value estimate to EUR 12.9 per share from EUR 11 after rolling our model one year forward and incorporating these good underlying results.

In July 2019, Deutsche Bank announced yet another strategic plan, which will see the bank exit its global equities sales and trading business, scale back part of its fixed income trading, and reduce its workforce by about 18,000 people by 2022. In the process it will shed EUR 288 billion in leverage exposure and a corresponding EUR 74 billion in risk-weighted assets. The new Deutsche Bank will refocus its efforts around its corporate bank in tandem with the remaining investment banking business, its private bank including its retail and wealth management businesses, as well as its asset management offering.

Deutsche Bank reported operating profits before tax of EUR 1,615 million versus consensus estimate of EUR 1,340 million as collected by the bank prior to the release. Strong revenue performance, in particular in the corporate bank and investment bank, was the core driver of the better-than-expected results. Total net revenues increased 15% to EUR 6,918 million compared with the same quarter a year ago. Operating expenses on an underlying basis and excluding foreign exchange impacts declined 1%, while loan loss provisions increased to EUR 350 million from EUR 117 million a year ago. We maintain our EUR 11 per share fair value estimate and no-moat rating.

In July 2019, Deutsche Bank announced yet another strategic plan, which will see the bank exit its global equities sales and trading business, scale back part of its fixed income trading, and reduce its workforce by about 18,000 people by 2022. In the process it will shed EUR 288 billion in leverage exposure and a corresponding EUR 74 billion in risk-weighted assets. The new Deutsche Bank will refocus its efforts around its corporate bank in tandem with the remaining investment banking business, its private bank including its retail and wealth management businesses, as well as its asset management offering.

No-moat Deutsche Bank reported second-quarter profits before tax of EUR 1,547 million up 33% versus the same quarter a year ago. These results also came out ahead of consensus estimates of EUR 1,330 million for the quarter, collected by the bank itself. Despite this strong performance, the market seemed more than just unimpressed with shares trading down close to mid-single digit percentage points at the time of writing. We believe the culprit is revised guidance that Deutsche Bank gave for this year, flagging higher than previously anticipated costs due to bank levies, inflation, and for good measure unforeseen costs related to the war in Ukraine, and litigation matters. It also highlighted plans not to cap investments this year, which could further depress performance in the short term. While having previously targeted a cost/income ratio of 70%, it now believes a low- to mid-70% ratio for 2022 is more realistic. We will examine the new guidance and update our model in future. A change to our EUR 11 per-share fair value estimate for the bank is likely to the downside given what we can deduce from the results right now, but we don’t expect a change beyond 10%.

No-moat Deutsche Bank reported first-quarter profits before tax of EUR 1,658 million, up 4% versus the same period a year ago on an overall strong showing. Revenue was up only 1%, dragged down by a EUR 353 million negative revenue in corporate and other, but performance across its operating segments was good. The corporate bank took the lead with another strong quarter (up 11%), followed by an above-our-expectations showing in the investment bank (up 7%) and asset management (up 7%). We maintain our fair value estimate of EUR 11 per share.

No-moat Deutsche Bank closed a good 2021 with an operating profit before tax of EUR 3.4 billion for the full year. Revenue growth of 6% combined with solid cost control (up 1%) lifted returns on equity to 3.8% versus 0.2% a year ago. The bank also announced a share-repurchase and dividend program to the tune of EUR 700 million in a sign of regained balance sheet strength. Expectations for 2022 are high. Transformation costs should drop to a barely mentionable amount, boosting performance further. However, an 8% return on tangible equity remains an ambitious goal, in our view. That being said, the bank is on the way up and management remains focused. We plan to update our assumptions and model shortly, primarily our revenue and cost growth outlook, which we expect to result in a fair value estimate increase of about 10%.

In July 2019, Deutsche Bank announced yet another strategic plan, which will see the bank exit its global equities sales and trading business, scale back part of its fixed income trading, and reduce its workforce by about 18,000 people by 2022. In the process it will shed EUR 288 billion in leverage exposure and a corresponding EUR 74 billion in risk-weighted assets. The new Deutsche Bank will refocus its efforts around its corporate bank in tandem with the remaining investment banking business, its private bank including its retail and wealth management businesses, as well as its asset management offering.

No-moat Deutsche Bank reported third-quarter profit before tax of EUR 554 million, ahead of the EUR 459 million consensus estimate collected by Deutsche Bank. The slightly better-than-expected result was due to its investment bank performing ahead of anticipations, more than offsetting higher operating expenses. We updated our model with various minor changes to revenue and cost assumptions, and lift our fair value estimate to EUR 11 per share from EUR 10.30, previously. The change in our fair value estimate is however, driven primarily by time value of money since our last model update.

Deutsche Bank has shown the weakest performance of all 18 banks under our coverage that participated in the 2021 European Central Bank stress test. In the adverse scenario, its common equity Tier 1 ratio dropped from 13.6% at the end of 2020 to 7.4% in 2023. In this scenario, Deutsche Bank would have breached its minimum capital requirements of 10.4% by a hefty 3 percentage points. From a regulatory standpoint, this is still fine. Deutsche would have to prepare a plan on how to rebuild its capital base and would not be allowed to pay any dividends or bonuses until it does. We doubt the market would allow Deutsche to fall this far, however. We expect that Deutsche would raise capital well in advance of any material shortcoming relative to its minimum requirements to avoid a downward spiral hurting its credibility in debt and equity markets, which can be a bank's death knell. We think Deutsche’s performance is also little surprising. The bank is in full restructuring mode, trying to rebuild its income streams and working toward a leaner cost base, both operationally as well as from a capital perspective. As Deutsche is yet to achieve meaningful and sustainable profitability, organic capital generation will remain weak. We maintain our EUR 10.30 fair value estimate and no-moat rating.

No-moat Deutsche Bank reported good second-quarter results with a return on tangible equity of 5.5% as the decline in investment banking revenue was less pronounced than we had anticipated. We maintain our fair value estimate of EUR 10.30 per share.