Overview: Deutsche Bank AG (“Deutsche Bank”, “the Bank”) is a multinational banking and financial services company with a geographical presence in over 70 countries. Deutsche Bank’s four core businesses are corporate banking & securities, private & business clients, asset & wealth management, and global transaction banking. The bank is headquartered in Frankfurt, Germany, and is dual-listed on the German and U.S. stock exchanges. The stock is trading on the Xetra platform (Frankfurt) with the ticker code DBK.
Catalysts: Deutsche Bank is trading at a 60% discount to its tangible book value. The Bank is currently in a transition process with management divesting non-core assets, reducing exposure to risk-weighted assets, and lowering capital expenditure. Following the recognition of substantial impairment charges over the past 12 months, the company is now well-positioned to improve capital ratios and increase its return on equity. Deutsche Bank has a well-diversified funding profile with ~€ 200bn of liquidity reserves.
Hurdles: Deutsche Bank’s share price has declined substantially and there is no guarantee that the trend won’t continue. While the company has set aside € 5.4bn, numerous legal charges are yet to be settled which may exceed the bank’s provisions. The Bank’s reputation has suffered significantly which may challenge Deutsche Bank’s capacity to attract fair value of its stock.
Investment View: Deutsche Bank offers transitional exposure to a turnaround in one of the world’s largest investment banks. We are attracted to its funding position and the progress made on restructuring the bank. As Deutsche Bank continues to divest non-core assets and reduce its exposure to risk-weighted assets, we believe that return on investment may improve over the next 12 months. Hurdles include trends, reputation risks, and legal charges. Deutsche Bank is exposed to significant risks and faces numerous challenges, however trading at a 60% discount to its book value and with new management aiming to restructure the bank, we believe that the balance of risk is attractive. We resume coverage with a ‘buy’ recommendation.
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