Deutsche Bank rating slashed to 'neutral' by rival Credit Suisse
German banking giant Deutsche Bank had its rating downgraded to ‘neutral’ from ‘outperform’ on Tuesday, by Swiss banking rival Credit Suisse who cited valuation grounds.
Deutsche Bank AG
€14.95
16:45 19/04/24
DJ EURO STOXX 50
4,936.57
23:58 18/04/24
Xetra DAX
17,737.36
17:00 19/04/24
“With the stock having outperformed the Stoxx 600 banks index by 17% over the last three months and now trading at 0.80 times 2015 tangible net asset value (TNAV) and 0.75 times 2016 TNAV for a return on tangible equity of 9.4% in 2017, we downgrade to neutral and establish a new target price of €33.5 from €35,” said Credit Suisse.
Outperform often denotes 'buy' while neutral can denote 'hold'.
Credit Suisse said that Deutsche Bank presented a meaningful restructuring plan with the set-up of a non-core unit and an ambitious 2015 return on equity target of 12% at its Investor Day two-and-half-years ago, but, “following a capital increase in 2014 and a revision of most of these initial targets, the group's strategy is being questioned, even more so given that the bank will miss most of its 2015 revised targets.”
“With the management due to update the market on group strategy in the second quarter, press comments are increasingly suggesting a radical shift in strategy with potentially a refocus of the group on investment banking activities and a partial or full disengagement from retail businesses,” the broker noted.
It added that beyond secular industry challenges for Deutsche’s investment banking businesses and a low interest rate environment, “the main driver of subdued returns in our opinion is higher regulatory requirements – with the initial parameters in terms of capital allocation being inadequate with a fast-evolving environment.”