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Deutsche Bank (DB) to Further Decline Post Q2 Earnings?

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Deutsche Bank AG (DB - Free Report) is scheduled to report its second-quarter 2016 results on Jul 27.

In the last quarter, the German banking giant reported a nearly 58% decline in net income on a year-over-year basis. The quarterly results were impacted by lower revenues and higher provisions. However, the reduction in non-interest expenses was a positive factor.

The backdrop has been tough for global banks since the beginning of the year. Concerns over the Chinese economic slowdown, continued volatility in commodity prices and the prevailing low and sometimes even negative interest rate environment have taken a huge toll on the industry. The industry wide weakness and global concerns were further fueled by the recent Brexit referendum which adversely impacted the bank stocks.

Notably, during the six months ended Jun 30, 2016, Deutsche Bank lost more than 40% on the NYSE.

Will the upcoming earnings release put further pressure on Deutsche Bank stock?  It majorly depends on whether the company is able to report improved profitability this earnings season.  Let's see what factors might have influenced the earnings report this time around.

Factors to Influence Q2 Results

The non-U.S. banks are continuing to reposition the business fundamentals to withstand any further crisis. Defensive actions like limiting expenses are still in place with focused on increasing the non-interest income. Notably, under the leadership of CEO John Cryan, Deutsche bank is executing its “Strategy 2020”, which contains several measures including initiatives to reposition investment banking, reorganize retail business and trim the geographic footprint. However, the challenging operating environment that prevailed in the second quarter does not indicate that the company is likely to post impressive results.

During the second quarter, global mergers and acquisitions declined substantially as a number of deals were abandoned amid concerns including regulatory and tax risks. Following the broader trend of lower investment banking revenues, Deutsche Bank is likely to witness a decline as well. While the trading environment improved from the first-quarter 2016, the bank may post a decrease in its trading revenues on a year over year basis.

Further, profitability of the bank should suffer amid negative interest rates and a slow economic growth.

Though Deutsche Bank remains focused on expense management, it has been embroiled in several lawsuits and investigations. As a result, some additional reserves for litigation expenses might have been sidelined, which could impact the bottom line to some extent. Also, the quarterly results are likely to reflect the impact of several ongoing restructuring measures. Restructuring and severance charges should remain high.

However, Deutsche Bank’s ability to cope with broader industry challenges amid its overhauling moves remains a key area to watch this earning season.

Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell).

Other foreign banks that are expected to release results in the coming days include UBS Group AG (UBS - Free Report) , Barclays PLC (BCS - Free Report) and Mitsubishi UFJ Financial Group, Inc. .Both UBS Group and Barclays are scheduled to report second-quarter results on Jul 29 , while Mitsubishi UFJ will report first quarter results (ended Jun 2016) on Aug 16.

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