Followers | 183 |
Posts | 9294 |
Boards Moderated | 0 |
Alias Born | 08/16/2010 |
Tuesday, September 27, 2016 11:29:23 AM
Deutsche Bank's biggest problem isn't just that it needs capital, but that it will find it very hard to raise any.
The German lender's stock keeps hitting multi-decade lows, which means an equity issue would be very costly. But that isn't all. Whatever the valuation, Deutsche will struggle to convince investors that it can make a return that beats its cost of capital in the years ahead.
The bank faces all the problems that plague its peers, but it has most of them worse than rivals. Its costs are among the highest, its balance sheet among the most bloated and its longer-term profitability one of the least attractive.
It has been apparent for some time that Deutsche would need extra capital to meet expected requirements in 2019 when all post-crisis rules come fully into force. And that is before taking into account further balance-sheet inflation coming from regulators and the costs of fines and penalties.
Deutsche's pending costs to settle U.S. mortgage bond probes are potentially more damaging to its capital than for rivals. But what is more, any settlements will create a 10-year earnings drag by adding even more unproductive operational risk assets to a balance sheet that already generates weaker profits than peers.
Deutsche is still Europe's leading investment bank by revenue, but it is losing ground globally to U.S. rivals and some European peers are catching up.
Plus, it produces fewer revenues for the size of its balance sheet than peers. Its sales and trading revenue per unit of risk-weighted assets in the first half were less than three-quarters of what Société Générale made and barely more than half of what Credit Suisse made.
Deutsche's operational risk-weighted assets, which add to capital charges without generating any revenue, are already about 25% of its group balance sheet. But in its main markets business that could rise as high as 40%. That is a hefty burden of unproductive assets.
The bank also has higher leverage than many peers. This can be seen in the low level of riskiness it assigns to its assets, which makes it vulnerable to changes due from global rule makers as they try to squeeze out the excess variability in banks' internal risk models.
There are no quick fixes to any of this. A sale of its asset management business might bring in some money but would weaken long-term returns. A merger with Commerzbank could create efficiencies at a cost, but would still leave it competing with the local savings and regional banks that don't need to make profit for shareholders.
But perhaps the biggest problem is that Deutsche never really made fantastic profit. There is only one year in the past 15 when its net income was high enough that it would produce a 10% return on today's equity base: That was in 2007 when Deutsche was one of the most highly leveraged banks in the world.
Deutsche's problem isn't that it can't survive, it is that few investors will be interested when it does.
Write to Paul J. Davies at paul.davies@wsj.com
DISCLAIMER: ALL MY POSTS ARE MY OWN PERSONAL OPINIONS AND NOT RECOMMENDATIONS TO BUY, SELL OR HOLD SECURITIES. DO YOUR OWN RESEARCH/DD AND MAKE YOUR OWN TRADING DECISIONS.
People kill for money. What makes you think they will not lie to you for yours?
Recent DB News
- Deutsche Bank Appointed as Depositary Bank for the Sponsored American Depositary Receipt Program of Radiopharm Theranostics Limited • Business Wire • 09/19/2024 04:00:00 PM
- Deutsche Bank Decreases Prime Lending Rate to 8.00% • Business Wire • 09/18/2024 09:00:00 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 04:03:40 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 04:03:20 PM
- OpenAI Unveils Strawberry AI Model Series; Boeing Stock Falls 4% Amid Strike; HR Surges 20% on Growth Forecast • IH Market News • 09/13/2024 10:12:55 AM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 01:52:17 AM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 01:50:19 AM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 01:48:27 AM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/13/2024 01:46:31 AM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 09:30:52 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 09:25:04 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 09:20:00 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 08:56:40 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 07:15:55 PM
- Grayscale Launches XRP Fund, Coinbase Debuts cbBTC Token, 1inch Reveals Atomic Swap Protocol • IH Market News • 09/12/2024 07:02:06 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 06:17:02 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 03:42:22 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 03:41:43 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/12/2024 03:39:27 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/06/2024 07:15:18 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/06/2024 07:09:28 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/06/2024 05:43:05 PM
- Broadcom Down 10% Post-Earnings, UiPath Up 8%; Qualcomm Eyes Intel Assets; Salesforce Acquires Own Company • IH Market News • 09/06/2024 11:59:00 AM
- Deutsche Bank and First Citizens Bank Close $315.7 Million Financing for Four Texas Battery Energy Storage Projects • Business Wire • 09/04/2024 01:00:00 PM
- Form 424B2 - Prospectus [Rule 424(b)(2)] • Edgar (US Regulatory) • 09/04/2024 12:32:58 PM
FEATURED Cannabix Technologies and Omega Laboratories Inc. Advance Marijuana Breathalyzer Technology - Dr. Bruce Goldberger to Present at Society of Forensic Toxicologists Conference • Sep 24, 2024 8:50 AM
FEATURED Integrated Ventures, Inc Announces Strategic Partnership For GLP-1 (Semaglutide) Procurement Through MedWell USA, LLC. • Sep 24, 2024 8:45 AM
Avant Technologies Accelerates Creation of AI-Powered Platform to Revolutionize Patient Care • AVAI • Sep 24, 2024 8:00 AM
VHAI - Vocodia Partners with Leading Political Super PACs to Revolutionize Fundraising Efforts • VHAI • Sep 19, 2024 11:48 AM
Dear Cashmere Group Holding Co. AKA Swifty Global Signs Binding Letter of Intent to be Acquired by Signing Day Sports • DRCR • Sep 19, 2024 10:26 AM
HealthLynked Launches Virtual Urgent Care Through Partnership with Lyric Health. • HLYK • Sep 19, 2024 8:00 AM