DB - Deutsche Bank AG

[cobafdek]

BAC-level book value, and this:  http://finance.yahoo.com/video/cnbc-29093777/meredith-whitney-s-favorite-bank-stock-30218582.html#crsl=%252Fvideo%252Fcnbc-29093777%252Fwhitney-s-favorite-bank-pick-30218582.html

Anybody interested? 

[PlanMaestro]

Deutsche Bank Swings to Loss as It Cleans Up.
http://online.wsj.com/article/SB10001424127887323701904578275110950896562.html

The fourth quarter was hit by €1 billion in litigation charges "reflecting adverse court rulings and developments in regulatory investigations," the bank said.

Adding to uncertainty for the bank, Germany's ruling coalition has drafted a proposed law requiring banks with proprietary trading, high-frequency trading or hedge-fund-financing operations that make up either 20% of the balance-sheet value or surpass €100 billion in value to transfer these risky businesses into legally and financially separate units. Mr. Jain said it is too early to know what type of impact the proposed law might have, and declined to provide further detail.

Spurring the uptick in the share price, Deutsche Bank reduced risk-weighted assets by about €80 billion through sales, new risk calculations and other measures in the second half of the year, Mr. Jain said. The bank's core Tier 1 capital ratio under new regulations known as Basel III rose to 8% from 6% a year ago. Eventually the bank will need a ratio of more than 9.5%.

"In simple terms, this is the equivalent of raising €8 billion of core Tier 1 capital without dilution," Mr. Jain told analysts on a call Thursday morning. "Many of you had given us a feedback of that's what we should have done. We stayed resolute, and indeed we feel we've been able to achieve the targets we promised you."

The bank's balance sheet shrank by €174 billion to €2.01 trillion in the fourth quarter from the third quarter.

Still, analysts raised questions about the internal models used to calculate the bank's core Tier 1 capital ratio, which contributed about 25% of the reduction to the bank's risk-weighted assets. Regulators in some countries are considering introducing a standard set of guidelines to be used in risk calculations, which would likely be harsher than most banks' models, analysts say.

[Gilp]

Hello board!

This is my first idea here and I'm mostly an amateur, so would love to hear your feedback.

Just came by this bank and looked at the numbers at morningstar.
Looks like it currently trades at 0.5 P/B. The net revenue looks quite similar in the recent 5 years, but the expenses in 2012, 2013 and TTM are almost same as the revenue, so the profitability is an issue here.

I don't really know how to evaluate banks(specially investment banks) other then looking at P/B and EPS, but I thought it may be interesting to you guys.

Would be interesting to hear your opinion and maybe giving me some clues(if there is really an opportunity)on how to do more homework here.

Thanks

Gil

[ukvalueinvestment]

My opinion is that this goes in the "too hard" pile..... for pretty much anyone.  The balance sheet is a black box.  And we all know that investment banks have not been good for shareholders in the long run in the past, and we all know that the German banking sector is intrinsically unprofitable. 
I defy anyone to tell me what it's earnings power in 5 years is.

 

[dutchman]

Do you guys find Standard Chartered more interesting at this point ?

[ukvalueinvestment]

I assume you mean as a short?

[lathinker]

Gilp,

funny enough I happened to look at DB today post their numbers aswell so can share a few thoughts:
In general, I am not in the camp of people who say "all banks are on the too hard pile". Some banks have a relatively simple and stable business model and I would argue that the pure operations of DB (Investment Banking, Commercial Banking, Transaction Baking, Wealth Management) can be good businesses.

In terms of valuation, for conservativeness I would look at Tangible Book Value rather than Book Value, i.e. exclude intangible assets. In terms of DB:

Share price: 25 EUR
TBV/share: 37,37 EUR (1.5x Share Price)
BV/Share: 47,98 EUR (2x Share Price)

One issue with German banks has been lack of capital and resulting dilution of shareholders when capital had to be raised. DB raised some capital this year, they appear sufficiently capitalized now and easily passed the ECB "stress test" (they would have passed even without the 8.5 bn equity raise). Therefore, I do not think a further dilution is to be feared.

Normally, for a company to trade at 1x BV, it should earn precisely its cost of equity capital. Now, you can discuss what that is (or how much you need to make upon investing in DB). I would put the number in the area of 10%. DB has 66 bn EUR in equity, so it would need to make 6.6 bn EUR a year in order to be worth 48 EUR/share. DB has never made that much money in their history and their RoE in the last years was more like 2%.
If you look look at their presentation, you will see they made about 7 bn in what they call "Adjusted IBIT" in the first 9 months of 2014. "Adjusted IBIT" exclude costs for restructurings, litigations, their Non-Core Unit (internal bad bank), other non-ordinary factors and income taxes which have been weighing on their results for a long time - and an end does not appear in sight (yet).

Accordingly, if DB ever got to really "normalize" their business and managed to move away from their legacy problems, there might be a chance for significant price appreciation.
However, management has guided cautiously citing a weak macro-environment and DB may have to pour more money into lawsuits. So, the path to improvement is not clear.
So overall, in my view, investing in DB is not the worst idea, but will require some patience. Following poor returns and dilution by capital raise, DB is now a "hated" stock which in my view is a good thing.

[constructive]

ECB stress tests are pretty laidback compared to US stress tests, yet many banks are still failing. The European banking sector is substantially undercapitalized and still needs to raise hundreds of billions to meet Basel III. I think that will continue to weigh on bank valuations, even those that don't need to raise money.

http://www.ibtimes.co.uk/36-european-banks-would-have-failed-stress-test-based-basel-iii-norms-1472049

[saltybit]

This has continued to drop. Probably bec. of recent regulatory run-ins?

[ItsAValueTrap]

Buffett has a pretty good understanding of investment banks especially because he worked at Solomon Brothers for 9 months.

There are reasons why he rarely invests in them.  They're black boxes especially in their derivatives book.  Historically, they haven't treated shareholders that well.  They usually find some way of hurting themselves on some new business line.  I think the only investment bank where he bought the common shares was Wells Fargo coming out of 2008/09.  If things get really ugly at investment banks that they may be worth looking at... e.g. when a number of them are about to go bankrupt or have gone bankrupt.