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Bear of the Day: Deutsche Bank (DB)

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Headquartered in Frankfurt, Deutsche Bank (DB - Free Report) is the largest bank in Germany and one of the largest financial institutions in Europe, with assets totaling €1.48 trillion as of Mar 31, 2018.

It offers a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world. 

Fails U.S. Stress Tests

Deutsche Bank’s U.S. operations failed the Fed’s stress tests, the results of which were released last week. The regulator cited “material weaknesses in capital planning” at the German bank.

The Fed was concerned about the ability of the bank to “effectively determine its capital needs on a forward-looking basis.”

Disappointing Results

The bank reported net income of €120 million ($147.5 million) for Q1 2018, down 79% year-over-year.

Revenues of €7 billion ($8.6 billion) were down 5% year over year. Expenses surged in the reported quarter.

Falling Estimates

Germany’s flagship bank has seen a sharp plunge in earnings estimates as a result of weak performance and continued woes.

Zacks Consensus Estimates for the current and next year EPS are now $0.94 per share and $1.32 per share respectively, down from $1.13 and $1.43, before the results.

The following chart shows negative earnings and price momentum:

 

The Bottom Line

After strict regulatory norms imposed on big banks, they have been finding it difficult to generate profits in their investmentbanking and trading businesses. Further continued low interest rates and sluggish European economy have hurt this bank’s lending profitability.

Deutsche Bank has been posting losses for three straight years. Earlier this year, the bank replaced its CEO and also announced plans to eliminate about 10,000 jobs and restructure its corporate strategy business.

Shares are down almost 45% this year as the overall outlook for the bank remains very uncertain. Due to sharp drop in its market capitalization, the bank may be removed from the Euro Stoxx 50 index, which could in turn lead to selling of its shares by funds that track the index.

It is safer to avoid the stock for the time being.

 

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