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Cost-Control Efforts Support Deutsche Bank Amid Low Rates
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On Jun 16, we issued an updated research report on Deutsche Bank AG (DB - Free Report) . The company’s strategy to improve performance through expense management and strengthening capital position will likely lend support. However, persistent margin pressure and involvement in legal matters might offset the positives to some extent.
The company’s Zacks Consensus Estimate for the current-year loss has widened to 41 cents from 31 cents over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Shares of Deutsche Bank have gained 23.2% over the past six months against the 31.9% decline for the industry.
The bank has taken steps to reduce expenses, which was reflected in its results over the past few quarters. Notably, adjusted costs (excluding litigation, impairments, policyholder benefits and claims, and restructuring and severance expenses) declined at a CAGR of 4.9% over the last three years (ended 2019). Further, Deutsche Bank targets to reduce adjusted costs to €17 billion by the end of 2022.
The company remains committed to improve its capital position and targets achieving Common Equity Tier 1 ratio of at least 12.5% at the end of 2022 and leverage ratio of about 5%. Also, in the stress test conducted by The European Banking Authority (EBA), the bank showed progress in its risk profile and capital position.
The company’s deposit balance has been rising with support from growth in Private and Commercial Bank segment. Further, the company’s loan-to-deposit ratio as of Mar 31, 2020, was 80.9%, reflecting a strong and stable funding base.
However, Deutsche Bank has significant involvement in legal matters, of which some have been settled. However, this is likely to keep expenses on the higher side in the near term. In December 2019, it faced a fine by the Frankfurt prosecutors related to the investigation of German client interactions with offshore entities established by the German bank's Virgin Islands subsidiary — Regula Ltd. These legal settlements have made a significant impact on its financials.
Pressure on margins due to low interest rates and declining fee income is primarily responsible for the decline in revenues. Further, challenging business conditions in the domestic economy might deter top-line growth.
As of Mar 31, 2020, Deutsche Bank had total debt of $136.4 billion, and cash and cash equivalents of $121.9 billion. Therefore, with a record of unstable quarterly performance, we find the company at a disadvantageous position if the economic situation worsens further.
Earnings estimates for First Republic Bank have moved 2% north over the past 60 days for the ongoing year. The company’s shares have declined 4.7% over the past six months. It carries a Zacks Rank of 2 at present.
The earnings estimates for GAIN Capital Holdings moved significantly north over the past 60 days for the ongoing year. The company’s shares have rallied 45.8% over the past six months. It carries a Zacks Rank of 2 at present.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Cost-Control Efforts Support Deutsche Bank Amid Low Rates
On Jun 16, we issued an updated research report on Deutsche Bank AG (DB - Free Report) . The company’s strategy to improve performance through expense management and strengthening capital position will likely lend support. However, persistent margin pressure and involvement in legal matters might offset the positives to some extent.
The company’s Zacks Consensus Estimate for the current-year loss has widened to 41 cents from 31 cents over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Shares of Deutsche Bank have gained 23.2% over the past six months against the 31.9% decline for the industry.
The bank has taken steps to reduce expenses, which was reflected in its results over the past few quarters. Notably, adjusted costs (excluding litigation, impairments, policyholder benefits and claims, and restructuring and severance expenses) declined at a CAGR of 4.9% over the last three years (ended 2019). Further, Deutsche Bank targets to reduce adjusted costs to €17 billion by the end of 2022.
The company remains committed to improve its capital position and targets achieving Common Equity Tier 1 ratio of at least 12.5% at the end of 2022 and leverage ratio of about 5%. Also, in the stress test conducted by The European Banking Authority (EBA), the bank showed progress in its risk profile and capital position.
The company’s deposit balance has been rising with support from growth in Private and Commercial Bank segment. Further, the company’s loan-to-deposit ratio as of Mar 31, 2020, was 80.9%, reflecting a strong and stable funding base.
However, Deutsche Bank has significant involvement in legal matters, of which some have been settled. However, this is likely to keep expenses on the higher side in the near term. In December 2019, it faced a fine by the Frankfurt prosecutors related to the investigation of German client interactions with offshore entities established by the German bank's Virgin Islands subsidiary — Regula Ltd. These legal settlements have made a significant impact on its financials.
Pressure on margins due to low interest rates and declining fee income is primarily responsible for the decline in revenues. Further, challenging business conditions in the domestic economy might deter top-line growth.
As of Mar 31, 2020, Deutsche Bank had total debt of $136.4 billion, and cash and cash equivalents of $121.9 billion. Therefore, with a record of unstable quarterly performance, we find the company at a disadvantageous position if the economic situation worsens further.
Stocks to Consider
Bank of Hawaii Corporation’s (BOH - Free Report) 2020 earnings estimates have been revised 17.6% upward over the past 60 days. This Zacks Rank #2 (Buy) company’s shares have lost 29.3% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for First Republic Bank have moved 2% north over the past 60 days for the ongoing year. The company’s shares have declined 4.7% over the past six months. It carries a Zacks Rank of 2 at present.
The earnings estimates for GAIN Capital Holdings moved significantly north over the past 60 days for the ongoing year. The company’s shares have rallied 45.8% over the past six months. It carries a Zacks Rank of 2 at present.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>