Bloomberg
Published May 28, 2019 07:22
Updated May 28, 2019 09:15
Deutsche Bank’s Options Are Limited for a Turnaround
(Bloomberg) -- These days, the path of Deutsche Bank (DE:DBKGn) feels a little bit like the final season of a long-running TV show. The latest plot driver: the lender’s stock regularly hitting new lows.
It was always clear that Christian Sewing would have much less time than his predecessors to get the bank’s problems fixed and tell the tale of a finally successful turnaround.
With the stock dive and with many issues like interest rates and the state of the European economy out of his control, his options are becoming limited.
It’s no surprise that during last week’s annual shareholder meeting he had to announce deeper cuts into the bank’s investment banking. While details about the next steps are not yet known, the history of investment banking restructurings shows that it often comes along with some sort of bad bank to wind down risk-weighted assets.
And it looks like Deutsche Bank is mulling an overhaul and may face the unfavorable option of yet another capital raise to handle this.
Meanwhile, management has to focus on the things it can control, mainly costs. Various problems arise on that front: first, cost-cutting campaigns are usually not sexy enough to lure new shareholders, it usually takes time to see the benefits of the cuts, and there is no guarantee of success as it almost always comes with further market share erosion, which can trigger more cuts, and so on.
It also might lead to an exodus of talented people, and some cracks are already showing up with key figures mulling plans to leave the lender.
It’s true, Deutsche Bank shares are cheap compared to its European peers, but the stock price needs more than pure valuation. It needs a good story to make people comfortable to invest in future returns.
Bankhaus Metzler analyst Jochen Schmitt wrote in a recent note following a meeting with Sewing that the first major cost savings were likely to kick in next year and that the bank’s ability to at least halt or reverse the revenue decline and regain earnings power is “still a key risk.” That means the stock might remain a joyless investment in the short term.
Euro Stoxx 50 futures are trading 0.3% higher ahead of the open, while FTSE 100 futures are up 0.5% as U.K. markets return from a public holiday.
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Written By: Bloomberg
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