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Deutsche Bank's (DB) Balance Sheet, Revenues Aid Amid Cost Woes
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A strong balance sheet position and revenue growth are expected to support Deutsche Bank AG’s (DB - Free Report) financials. Its strong liquidity profile aids sustainable capital distribution activities. Moreover, the company is shifting its focus from investment banking to more stable businesses to further propel revenues in the upcoming period. However, a rise in expenses and a deterioration in credit quality are concerning.
Deutsche Bank’s solid deposit balances support its financials. The metric has witnessed a compound annual growth rate (CAGR) of 2.4% over the last four years (ended 2022). However, the trend declined in the first nine months of 2023, primarily due to migration into higher-yielding investment products and continued inflationary pressure affecting retail clients. Notably, we believe that the solid deposit balance will strengthen the company’s balance sheet.
Deutsche Bank’s net revenues saw a CAGR of 5.5% over the last three years (ended 2022). The uptrend continued in the first nine months of 2023. The company is shifting its focus from investment banking to more stable businesses like private banks, corporate banks and asset management units to aid revenues in the upcoming period. Management expects revenues of €29 billion for 2023.
Deutsche Bank remains focused on strengthening its capital position. As of Sep 30, 2023, the Common Equity Tier 1 (CET 1) ratio improved to 13.9% from 13.8% in second-quarter 2023. The company also expects to maintain a CET 1 ratio of approximately 13% by 2025.
As of Sep 30, 2023, Deutsche Bank had total debt (comprising long-term debt and other short-term borrowings) of €125.15 billion and cash, central bank and interbank balances worth €175.88 billion.
This showcases that the bank has sufficient resources to fulfill its debt obligations. Given the strong liquidity position, its capital distribution activities seem sustainable, thereby stoking investors’ confidence in the stock.
Shares of this Zacks Rank #3 (Hold) company have gained 26.6% on the NYSE over the past three months compared with the industry’s growth of 11.4%.
Image Source: Zacks Investment Research
However, total non-interest expenses increased in the first nine months of 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, which is likely to limit the company’s bottom-line growth. Management projects non-interest expenses to be slightly higher in 2023 from 2022 end.
Deutsche Bank has seen a deterioration in its credit quality. In 2022, it recorded provision for credit losses of €1.23 billion compared with €515 million in the prior year. Given the current uncertain macroeconomic backdrop, the company is likely to keep its provisions high in the near term.
Due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory proceedings in Germany and a number of jurisdictions outside Germany. The bank shouldered significant legal settlement costs in the past, which adversely impacted its financials. Hence, any higher legal expenses are expected to affect its financials in the near term.
The Zacks Consensus Estimate for DBS Group’s current-year earnings was revised 2.4% upward over the last 60 days. Its shares have gained 1.8% in the past three months.
Earnings estimates for ICICI Bank for fiscal 2024 were revised 2.6% upward over the last 30 days. In the past three months, IBN shares have gained 3.9%.
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Deutsche Bank's (DB) Balance Sheet, Revenues Aid Amid Cost Woes
A strong balance sheet position and revenue growth are expected to support Deutsche Bank AG’s (DB - Free Report) financials. Its strong liquidity profile aids sustainable capital distribution activities. Moreover, the company is shifting its focus from investment banking to more stable businesses to further propel revenues in the upcoming period. However, a rise in expenses and a deterioration in credit quality are concerning.
Deutsche Bank’s solid deposit balances support its financials. The metric has witnessed a compound annual growth rate (CAGR) of 2.4% over the last four years (ended 2022). However, the trend declined in the first nine months of 2023, primarily due to migration into higher-yielding investment products and continued inflationary pressure affecting retail clients. Notably, we believe that the solid deposit balance will strengthen the company’s balance sheet.
Deutsche Bank’s net revenues saw a CAGR of 5.5% over the last three years (ended 2022). The uptrend continued in the first nine months of 2023. The company is shifting its focus from investment banking to more stable businesses like private banks, corporate banks and asset management units to aid revenues in the upcoming period. Management expects revenues of €29 billion for 2023.
Deutsche Bank remains focused on strengthening its capital position. As of Sep 30, 2023, the Common Equity Tier 1 (CET 1) ratio improved to 13.9% from 13.8% in second-quarter 2023. The company also expects to maintain a CET 1 ratio of approximately 13% by 2025.
As of Sep 30, 2023, Deutsche Bank had total debt (comprising long-term debt and other short-term borrowings) of €125.15 billion and cash, central bank and interbank balances worth €175.88 billion.
This showcases that the bank has sufficient resources to fulfill its debt obligations. Given the strong liquidity position, its capital distribution activities seem sustainable, thereby stoking investors’ confidence in the stock.
Shares of this Zacks Rank #3 (Hold) company have gained 26.6% on the NYSE over the past three months compared with the industry’s growth of 11.4%.
Image Source: Zacks Investment Research
However, total non-interest expenses increased in the first nine months of 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, which is likely to limit the company’s bottom-line growth. Management projects non-interest expenses to be slightly higher in 2023 from 2022 end.
Deutsche Bank has seen a deterioration in its credit quality. In 2022, it recorded provision for credit losses of €1.23 billion compared with €515 million in the prior year. Given the current uncertain macroeconomic backdrop, the company is likely to keep its provisions high in the near term.
Due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory proceedings in Germany and a number of jurisdictions outside Germany. The bank shouldered significant legal settlement costs in the past, which adversely impacted its financials. Hence, any higher legal expenses are expected to affect its financials in the near term.
Foreign Banks Worth a Look
A couple of better-ranked stocks from the same space are DBS Group (DBSDY - Free Report) and ICICI Bank (IBN - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for DBS Group’s current-year earnings was revised 2.4% upward over the last 60 days. Its shares have gained 1.8% in the past three months.
Earnings estimates for ICICI Bank for fiscal 2024 were revised 2.6% upward over the last 30 days. In the past three months, IBN shares have gained 3.9%.