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Bear of the Day: Deutsche Bank (DB)

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Germany’s flagship bank is going through tough times. The bank, which was already struggling with investment banking and Brexit woes, saw its stock plunge to its lowest price in more than 30 years, when the IMF branded it the riskiest globally significant bank and the Fed objected to the capital plans of its US unit which failed the stress test.
About the Company
Headquartered in Frankfurt, Deutsche Bank (DB - Free Report) is the largest bank in Germany and one of the largest financial institutions in Europe and the world, with assets totaling €1.74 trillion as of Mar 31, 2016. It offers a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world. 
Disappointing First Quarter Results
Deutsche Bank reported net income of €236 million ($260.3 million) in the first quarter of 2016, down 57.8% year over year. Income before income taxes came in at €579 million ($638.6 million), down 60.9% year over year.

The quarterly results were hurt by lower revenues and higher loan provisions, partly offset by the reduction in non-interest expenses.
Falling Estimates
The 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 $1.38 and $2.21 respectively down from $3.10 and $2.85, just 60 days ago.

IMF and Fed Rebuke
On Thursday, in a statement released after in its annual review of the stability of the German financial sector, the IMF said that among globally important banks, Deutsche, which is highly interconnected with other financial institutions due to its investment and transaction banking units, “appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse.”
Earlier the Federal Reserve cleared capital plans of 31 out of 33 big US banks after stress tests. These banks can now increase their dividend payouts and share buybacks. The US units of Deutsche Bank and Santander Bank were the only banks that failed the test.
Brexit Woes
European banks’ shares were hammered after Brexit vote as it could cause a recession in the UK and increase in loan losses. These banks have a strong presence in London and their cross border trading and clearing operations could also suffer if Britain leaves the union.
The Bottom Line
After strict regulatory norms imposed on big banks, they have been finding it difficult to generate profits in their investment banking and trading businesses. Rising market volatility has also impacted their traditional businesses. Further continued low interest rates have hurt their lending profitability.
The German bank is also being probed by regulators for its mortgage backed banking business and its Russian operations. Recent the Financial Industry Regulatory Authority (FINRA) fined the bank $6 million for failing to provide timely and accurate trade data.
Last year, Deutsche had announced job cuts and restructuring plans for its corporate banking and securities unit but the bank continue to struggle. While shares may recover slightly after a very sharp plunge last week, the overall outlook for the bank remains cloudy .
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