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Deutsche Bank's (DB) Balance Sheet & Revenues Aid, Costs Ail
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A strong balance sheet position and revenue growth are expected to support Deutsche Bank AG’s (DB - Free Report) financials, while the sale of non-strategic businesses and assets has bolstered its capital ratios. The company is shifting its focus from investment banking to more stable businesses like private banks to further propel revenues. However, a rise in expenses and a deterioration in credit quality are concerning.
Deutsche Bank’s deposits have witnessed a compound annual growth rate (CAGR) of 2.8% over the past three years (ended 2022). However, the trend declined in first-quarter 2023 majorly due to price competition, normalization from elevated levels and migration into higher-yielding investment products.
Nonetheless, the company’s loan-to-deposit ratio as of Mar 31, 2023, was 82.4%, reflecting a strong and stable funding base. Hence, a stable deposit balance is expected to strengthen the company’s balance sheet in the upcoming quarters.
Deutsche Bank’s net revenues saw a CAGR of 1.8% over the last four years (ended 2022). The uptrend continued in first-quarter 2023. The company is shifting its focus from investment banking to more stable businesses like private banks, corporate banks and asset management units in order to aid revenues in the upcoming period. We estimate the metric to grow 3% in the current year.
DB has been focused on strengthening its capital position by exiting non-strategic businesses and assets. As of Mar 31, 2023, the Common Equity Tier 1 (CET 1) ratio improved to 13.6% from 13.4% in fourth-quarter 2022. Also, the company’s liquidity position was robust, underlined by a €241-billion liquidity reserve and a liquidity coverage ratio of 143% as of the first-quarter 2023 end.
As of Mar 31, 2023, Deutsche Bank had long-term debt of €128 billion, and cash, central bank and interbank balances worth €167 billion. Decent liquidity will support its capital deployment activities and enhance shareholder wealth.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 24.5% compared with the industry’s rise of 15.3%.
Image Source: Zacks Investment Research
However, total non-interest expenses increased in first-quarter 2023, though it witnessed a negative CAGR of 3.4% over the last four years (ended 2022). Moreover, the cost base is likely to rise, given the investment in technology and inflationary pressures, which are likely to limit the company’s bottom-line growth. We estimate the metric to reach €21.6 billion by 2025.
Deutsche Bank has seen a deterioration in its credit quality. In 2022, it recorded a provision for credit losses of €335 million against a benefit of €3 million in the prior year. Though the metric declined in first-quarter 2023 from the prior-year levels, the company is likely to keep its provisions high in the near term.
Also, the net charge-offs witnessed a CAGR of 26.9% over the last four years (ended 2022). A worsening economic outlook amid recessionary fears is expected to affect credit quality in the coming quarters. We expect net charge-offs to increase marginally in the current year.
The Zacks Consensus Estimate for BNP Paribas’ current-year earnings was revised 15.3% upward over the last 60 days. Its shares have gained 2.9% in the past three months.
Earnings estimates for Nordea Bank for 2023 were revised 4.4% upward over the last 30 days. In the past three months, NRDBY shares have gained 6.6%.
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Deutsche Bank's (DB) Balance Sheet & Revenues Aid, Costs Ail
A strong balance sheet position and revenue growth are expected to support Deutsche Bank AG’s (DB - Free Report) financials, while the sale of non-strategic businesses and assets has bolstered its capital ratios. The company is shifting its focus from investment banking to more stable businesses like private banks to further propel revenues. However, a rise in expenses and a deterioration in credit quality are concerning.
Deutsche Bank’s deposits have witnessed a compound annual growth rate (CAGR) of 2.8% over the past three years (ended 2022). However, the trend declined in first-quarter 2023 majorly due to price competition, normalization from elevated levels and migration into higher-yielding investment products.
Nonetheless, the company’s loan-to-deposit ratio as of Mar 31, 2023, was 82.4%, reflecting a strong and stable funding base. Hence, a stable deposit balance is expected to strengthen the company’s balance sheet in the upcoming quarters.
Deutsche Bank’s net revenues saw a CAGR of 1.8% over the last four years (ended 2022). The uptrend continued in first-quarter 2023. The company is shifting its focus from investment banking to more stable businesses like private banks, corporate banks and asset management units in order to aid revenues in the upcoming period. We estimate the metric to grow 3% in the current year.
DB has been focused on strengthening its capital position by exiting non-strategic businesses and assets. As of Mar 31, 2023, the Common Equity Tier 1 (CET 1) ratio improved to 13.6% from 13.4% in fourth-quarter 2022. Also, the company’s liquidity position was robust, underlined by a €241-billion liquidity reserve and a liquidity coverage ratio of 143% as of the first-quarter 2023 end.
As of Mar 31, 2023, Deutsche Bank had long-term debt of €128 billion, and cash, central bank and interbank balances worth €167 billion. Decent liquidity will support its capital deployment activities and enhance shareholder wealth.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 24.5% compared with the industry’s rise of 15.3%.
Image Source: Zacks Investment Research
However, total non-interest expenses increased in first-quarter 2023, though it witnessed a negative CAGR of 3.4% over the last four years (ended 2022). Moreover, the cost base is likely to rise, given the investment in technology and inflationary pressures, which are likely to limit the company’s bottom-line growth. We estimate the metric to reach €21.6 billion by 2025.
Deutsche Bank has seen a deterioration in its credit quality. In 2022, it recorded a provision for credit losses of €335 million against a benefit of €3 million in the prior year. Though the metric declined in first-quarter 2023 from the prior-year levels, the company is likely to keep its provisions high in the near term.
Also, the net charge-offs witnessed a CAGR of 26.9% over the last four years (ended 2022). A worsening economic outlook amid recessionary fears is expected to affect credit quality in the coming quarters. We expect net charge-offs to increase marginally in the current year.
Foreign Banks Worth a Look
A couple of better-ranked stocks from the same space are BNP Paribas (BNPQY - Free Report) and Nordea Bank (NRDBY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for BNP Paribas’ current-year earnings was revised 15.3% upward over the last 60 days. Its shares have gained 2.9% in the past three months.
Earnings estimates for Nordea Bank for 2023 were revised 4.4% upward over the last 30 days. In the past three months, NRDBY shares have gained 6.6%.