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Analyst Blog

On Feb 14, 2014, we issued an updated research report on Deutsche Bank AG . The company recently reported dismal fourth-quarter 2013 results. With elevated litigation related expenses, the company recorded higher provision for loan losses along with the deteriorating top line. Yet prudent expense management led to a fall in expenses.

Deutsche Bank posted net loss of €965 million ($1.3 billion) in the fourth quarter of 2013 as compared with a loss of €2.5 billion ($3.4 million) in the prior-year quarter. Furthermore, the bank reported net revenue of €6.6 billion ($9.0 billion) in the reported quarter, down 16% year over year.

Though organic growth remained a key strength at Deutsche Bank as reflected by its revenue growth story in the past with a CAGR of 19.9% over the five years (2008–2012), revenues dropped 5% in 2013, primarily due to a downturn in corporate banking and securities business. Continuation of such a trend will become a hindrance for bottom-line growth.

However, despite recording a CAGR of 11.3% over the 5 years (2008–2012), non-interest expenses declined 11% in 2013, reflecting the company’s successful expense reduction initiatives. Deutsche Bank contemplates making investments of approximately €4 billion and undertaking other measures to help achieve full run-rate annual cost savings of €4.5 billion by 2015.

Amid the worldwide economic volatility, the company is focused on building its capital level. Strategy 2015+ efforts are encouraging and we expect such efforts to help improve its operating efficiency.

Following fourth-quarter 2013 results, the Zacks Consensus Estimate remained stable at $5.08 for 2013, over the last 30 days, while the Zacks Consensus Estimate declined about 1% to $6.14 for 2014. Hence, Deutsche Bank currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better ranked foreign stocks worth considering include Shinhan Financial Group Company Ltd with a Zacks Rank #1 (Strong Buy), while The Royal Bank of Scotland Group plc and Lloyds Banking Group plc carry a Zacks Rank #2 (Buy).

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