Back to top

Image: Bigstock

Deutsche Bank (DB) to Withdraw From Russia, Sets '25 Goals

Read MoreHide Full Article

In light of the Russia-Ukraine conflict, Deutsche Bank AG (DB - Free Report) recently announced that it is winding down its business in Russia. The company had already been significantly reducing its loan exposures to Russia since 2014. The company’s net loan exposure to Russia, as of Dec 31, 2021, was €0.6 billion ($655 million).

Deutsche Bank affirmed that it will not start any new business in Russia. It is also helping its non-Russian multinational clients reduce their operations in the country.

Last week, the company also provided insights into its financial and capital plans for the coming years. While it delivered its most profitable year in 2021 in a decade, DB aims for higher annual revenues, lower cost-to-income ratio and other capital strategic changes to be achieved by 2025.

Deutsche Bank has made progress since the 2019 overhaul in which it discontinued certain businesses and decreased the number of its employees following years of losses. Per its financial plans, the bank strives to achieve a post-tax return on tangible equity (RoTE) of more than 10% by 2025. The company expects to deliver a post-tax RoTE of 8% in 2022.

Deutsche Bank aims for a cost-to-income ratio of below 62.5% for 2025. The company’s cost-to-income ratio for 2021 was 84.6% while the bank targets 70% for 2022. Given the cost reduction on the back of lower headcount from the completion of information technology systems, and the ongoing rationalization of real estate holdings, the company’s target for 2022 might be achievable.

The company also expects to raise revenues to approximately €30 billion by 2025, with a compounded annual growth rate of 3.5-4.5% for 2021-2025. This is based on the expected business volume growth and present market opportunity.

Deutsche Bank strives to strengthen cross-divisional collaboration, harness growth and become more efficient in self-funding its investments. If the bank successfully achieves such goals, it can lead to a capital distribution to shareholders of around €8 billion in the financial years from 2021 to 2025. However, such distributions are subject to approvals. The company intends for a total payout ratio of 50% of net income to its shareholders in 2025 and beyond.

Per its capital strategy, Deutsche Bank will maintain a common equity tier 1 capital ratio of approximately 13%. This is subject to a minimum threshold of 200 basis points above the expected maximum distributable amount threshold of around 11%.

The company anticipates retaining tangible equity to support its growth further, and for the implementation of first elements of the expected Basel III regulatory capital changes, effective Jan 1, 2025.

The bank has witnessed a volatile trend for its net revenues over the past few years, which is concerning. However, it aims to become the first point of contact for a larger number of clients in any financial matter by building on its position as ‘Global Hausbank’. These efforts are expected to bode well for the company’s long-term prospects.

Over the past year, shares of DB have declined 18% on the NYSE, underperforming the 0.2% decline of the industry.

Zacks Investment Research
Image Source: Zacks Investment Research

Deutsche Bank currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , Bancolombia S.A. (CIB - Free Report) and PCB Bancorp (PCB - Free Report) . At present, CIB flaunts a Zacks Rank of 1, while FBIZ and PCB carry a Zacks Rank #2 (Buy) each.

Over the past year, shares of CIB have jumped 9.6%, while shares of FBIZ and PCB have rallied 18.2% and 40.3%, respectively.

Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised marginally upward, while the same for PCB Bancorp have remained flat. Moreover, current-year earnings estimates for CIB have moved 21.7% north over the past month.