DB - Deutsche Bank AG

[Spekulatius]

The problem with DB and Commerzbank is that Theresias no escape from Germany being overhauled. it‘s not just the private banks, most citizens bank with town/state owned Sparkassen or mutual/thrift like Raiffaisenkassen,  plus there are lot of foreign competitors  (angling for better customers) and direkte (online) banks. Even if DB and Commerzbank went out of business, it would barely make a dent. Quite frankly, these government owned banks seem to be better and more customer friendly run than their private instead counterparts. I don’t think the average citizen would give a hoot if DB would be nationalized in a downturn.

[schin]

The problem with DB and Commerzbank is that Theresias no escape from Germany being overhauled. it‘s not just the private banks, most citizens bank with town/state owned Sparkassen or mutual/thrift like Raiffaisenkassen,  plus there are lot of foreign competitors  (angling for better customers) and direkte (online) banks. Even if DB and Commerzbank went out of business, it would barely make a dent. Quite frankly, these government owned banks seem to be better and more customer friendly run than their private instead counterparts. I don’t think the average citizen would give a hoot if DB would be nationalized in a downturn.

 

Yes, in an ideal world, most banks would have cheap retail/consumer funding with its virtually nil funding costs... It's like that in the US, but definitely not like that in Germany.  In some ways, it's a blessing in disguise with negative EU rates. But, that is a subject for another day.

 

If DB and Commerzbank goes out of business, I think the corporations that the average citizens work at will hurt. A leading, export economy has to have prominent banks to handle FX. DB essentially caters to corporate and institutional clients. One could think of their retail/consumer branches as an add-ons and just for PR/marketing. It's not something they can make a lot of money on for the various reasons you explained earlier, but you take what you little you can get.

 

For corporate clients, DB and Commerzbank are their preferred conduit to the outside world. German owned, german lead, and german breed.  You think the Sparkassen or Raiffaisenkasse can support the global trade and IB functions needed in a booming global economy. Would they be able to support BMW, Volkswagen, Bayer, Mercedes, etc?

 

The economic climate is just not good for any EU banks...  The EU, Middle East, and China economies are recovering... The only great market now is really US, which is dominated by JPM, GS, Citi, etc.  I would like to see how DB, Barclays, BNP all do when EU comes back online.

[schin]

You are thinking BV and I'm arguing that DB is situated such that it can only be a going concern and that it will not generate meaningful returns. Normally, BV is useful for large underperforming banks to guess future earnings (since they are also going concern only). For those reasons, I don't think BV is representative of value for DB.

 

I am just looking at different valuation methods. But, let's look at the going concern exercise.... Let's say it stays flat for the next 5 years, 24B in revenue minus 21.5B in costs.... That's 2.5B in profit each year. If you buy it today, its market cap is 17.21B -- that gives you an earnings yield of 14%. Or a P/E of 6.8.  Buying a below average, G-SIB, that is too big to fail -- at that multiple is not the worst thing you can do.

 

That is not assuming any P/E expansion or TBV expansion, which I think is crazy... with something trading at .3 book.... I would be happy with it trading at .6 TB.

[SharperDingaan]

DB is a GSIB, and will not be allowed to fail. http://www.fsb.org/wp-content/uploads/P161118-1.pdf

 

Notable is that the ONLY GSIB more risky than DB, is JP Morgan. And in the present climate; most would expect that DB is now either on par with JP Morgan, or even more risky. Even Goldman Sachs is less risky than DB, and they actually know what they are doing!

 

SD

 

[schin]

DB is a GSIB, and will not be allowed to fail. http://www.fsb.org/wp-content/uploads/P161118-1.pdf

 

Notable is that the ONLY GSIB more risky than DB, is JP Morgan. And in the present climate; most would expect that DB is now either on par with JP Morgan, or even more risky. Even Goldman Sachs is less risky than DB, and they actually know what they are doing!

 

SD

 

This was just released this week.. and it shows they are making a consorted effort to deleveraged and reducing from the 2% to 1.5% tier.  I think Christian Sewing is doing the right thing, when dumb money realizes they are overmatched.... are they still dumb money when they understand their limitations?

 

https://www.db.com/newsroom_news/2019/deutsche-bank-publishes-reductions-in-g-sib-indicators-for-2018-en-11476.htm

[Spekulatius]

DB is a GSIB, and will not be allowed to fail. http://www.fsb.org/wp-content/uploads/P161118-1.pdf

 

Notable is that the ONLY GSIB more risky than DB, is JP Morgan. And in the present climate; most would expect that DB is now either on par with JP Morgan, or even more risky. Even Goldman Sachs is less risky than DB, and they actually know what they are doing!

 

SD

 

Deutsche Bank would not be allowed to fail, but I don’t think the government would make much bones about nationalizing them either, They would go into a special vehicle or into the Abwicklungsgesellschaft. Banking with a government owned institution doesn’t  the same stigma than in the US. Besides that, there are the Landesbanken (which are the master institutions of the Sparkassen) they have balance sheets around 200B Euro each. They can handle quite a bit of FX. the large companies like Daimler, BMW have their own treasury departments and even banks and don’t really need DB or Commerzbank any more.

 

 

Personally I think DB leadership is doing the right thing deleveraging. I just don’t see a way around the profitability issue. I’d rather buy Barclays (which also trades at fraction of book -0.44x) , but operates in  a profitable home market and their investment banking is better than DB’s. Of course they have Brexit too.... 0.44x book market is plenty cheap, imo.

[schin]

Personally I think DB leadership is doing the right thing deleveraging. I just don’t see a way around the profitability issue. I’d rather buy Barclays (which also trades at fraction of book -0.44x) , but operates in  a profitable home market and their investment banking is better than DB’s. Of course they have Brexit too.... 0.44x book market is plenty cheap, imo.

 

Jes Staley is doing a great job.... Comes from JPM pedigree and actually poached a lot of JPM talent to staff Barclays.

[Castanza]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

[TwoCitiesCapital]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

SAN and Eurobank are reasonable positions for me. Sberbank is one of my largest holdings, but may not qualify as European.

 

Tiny position in DB.

[schin]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

I'm invested in DB and Commerzbank. Earlier this year, I was also invested in BCS, BNP, and EUFN. I was also in Sberbank, the largest bank in Russia, as a play on that economy.

 

As a sector, it's almost like shooting fish an a barrel... As you can get some best in class companies at below BV. It's really like the US financial crisis, where every bank were taken to the woodshed.... That was a great time to pick up the GS, WFC, and JPMs.... as they were blackmailed by the BAC and C of the world.

 

Also, money managers like State Street were great buy... so, right now, I don't think you can go wrong with playing the basket in EUFN. Or going top shelf with BNP, HSBC, UBS, etc.

[schin]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

SAN and Eurobank are reasonable positions for me. Sberbank is one of my largest holdings, but may not qualify as European.

 

Tiny position in DB.

 

What is your thesis on Sberbank over others. The PE is amazing cheap, but I didn't know it's market cap was as big as it is... but, it is dominate in Russia.... but, it's trading close to book.

[TwoCitiesCapital]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

SAN and Eurobank are reasonable positions for me. Sberbank is one of my largest holdings, but may not qualify as European.

 

Tiny position in DB.

 

What is your thesis on Sberbank over others. The PE is amazing cheap, but I didn't know it's market cap was as big as it is... but, it is dominate in Russia.... but, it's trading close to book.

 

Mostly covered in other threads on Russian stocks.

 

It's stupid cheap for being one of the largest and most profitable banks in the world. Is already a target of sanctions due to be partially state-owned and those didn't stop it which eases the threat going forward.

 

Lastly, it's a flight to quality for Russian depositors - Sberbank collects deposits in crisis while it's competition fails, leaving it more consolidated and with less competition going forward. This was true in both 2008 as well as 2014-2016. It will likely be true in the future.

[Castanza]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

SAN and Eurobank are reasonable positions for me. Sberbank is one of my largest holdings, but may not qualify as European.

 

Tiny position in DB.

 

What is your thesis on Sberbank over others. The PE is amazing cheap, but I didn't know it's market cap was as big as it is... but, it is dominate in Russia.... but, it's trading close to book.

 

Mostly covered in other threads on Russian stocks.

 

It's stupid cheap for being one of the largest and most profitable banks in the world. Is already a target of sanctions due to be partially state-owned and those didn't stop it which eases the threat going forward.

 

Lastly, it's a flight to quality for Russian depositors - Sberbank collects deposits in crisis while it's competition fails, leaving it more consolidated and with less competition going forward. This was true in both 2008 as well as 2014-2016. It will likely be true in the future.

 

Interesting, I've had this on my watch list for a bit now. Gonna have to dive in a little deeper. Any other insights to share? The sanctions piece you mentioned was interesting, that's was one thing that made me hesitant.

[John Hjorth]

SBRCY - Sberbank topic here on CoBF.

[Castanza]

https://www.bloomberg.com/news/articles/2019-07-07/deutsche-bank-launches-major-overhaul-with-8-3-billion-charges?utm_source=facebook&cmpid=socialflow-facebook-business&utm_content=business&utm_medium=social&utm_campaign=socialflow-organic

[RuleNumberOne]

1.3T in assets, 1.3B in net income, 16B in market cap.

 

The market seems to think DB is essentially bankrupt. Can the bears hope for a derivatives blowup here?

 

https://www.marketwatch.com/story/deutsche-bank-pegs-its-derivatives-exposure-at-about-22-billion-and-faces-challenges-in-shedding-those-assets-2019-07-26

 

"Deutsche Bank created over the years a whopping $53.5 trillion (€48 trillion) book of derivatives contracts that it now is seeking to unload, but experts say getting rid of those assets is no easy task.

 

The plan, as part of Deutsche Bank’s DBK, -0.63% biggest restructuring in decades, is to see its derivatives and other unwanted financial instruments that are now housed in its Capital Release Unit, or “bad bank,” be sold or wound down over time."

[RuleNumberOne]

https://www.reuters.com/article/us-deutsche-bank-derivatives-exclusive/exclusive-deutsche-banks-problem-derivatives-cloud-recovery-sources-idUSKCN1UI2TT

 

"It is doubtful that the bank would be able to sell the positions in their entirety without taking a large write-down requiring the bank to raise capital from shareholders, the three people said.

 

“They are not in a position to mark these things down and sell them off because they don’t have the capital to spare and it’s not clear where the next capital injection will come from,” said Ali Miremadi, portfolio manager at shareholder GAM. “Really, they have no choice but to sit there and wait for them to unwind.”"

[SharperDingaan]

Can you really see Deutsche Bundesbank allowing the DB restructuring to fail - simply because DB couldn't get rid of its long dated derivative book without bankrupting the bank? And if you were Deutsche Bundesbank, would you not demand an equity 'sweetener' for a mirror swap/repo that takes it off DB's hands?

 

50%-1 shares, as the 'starting' ask?

Opportunities.

 

SD

 

 

 

 

[Spekulatius]

Can you really see Deutsche Bundesbank allowing the DB restructuring to fail - simply because DB couldn't get rid of its long dated derivative book without bankrupting the bank? And if you were Deutsche Bundesbank, would you not demand an equity 'sweetener' for a mirror swap/repo that takes it off DB's hands?

 

50%-1 shares, as the 'starting' ask?

Opportunities.

 

SD

 

DB will Never fail - it would be nationalized. It wouldn’t be the first one either.

[SharperDingaan]

This is THE german bank ... so not good PR to actually nationalize.

Hence the 50% - 1 share. Not quite nationalization, as not quite majority owned; but a large enough minority interest to make it a de-facto nationalization. There's still a share price, set by the market every day, and everyone gets to suck and blow at the same time. Very European!

 

SD

 

[Spekulatius]

This is THE german bank ... so not good PR to actually nationalize.

Hence the 50% - 1 share. Not quite nationalization, as not quite majority owned; but a large enough minority interest to make it a de-facto nationalization. There's still a share price, set by the market every day, and everyone gets to suck and blow at the same time. Very European!

 

SD

 

i believe that if the German government , it will only do so if they effectively control the bank. I can Detroit you that there is very little love for the Deutsche Bank in the populace and the government. That why I believe that rescuing them without controlling or even nationalizing them wouldn’t fly. This is not the US, balancing with state owned banks is common and not a stigma. I think most customers  prefer to get the managers running place get kicked out.

[SharperDingaan]

This is THE german bank ... so not good PR to actually nationalize.

Hence the 50% - 1 share. Not quite nationalization, as not quite majority owned; but a large enough minority interest to make it a de-facto nationalization. There's still a share price, set by the market every day, and everyone gets to suck and blow at the same time. Very European!

 

SD

 

i believe that if the German government , it will only do so if they effectively control the bank. I can Detroit you that there is very little love for the Deutsche Bank in the populace and the government. That why I believe that rescuing them without controlling or even nationalizing them wouldn’t fly. This is not the US, balancing with state owned banks is common and not a stigma. I think most customers  prefer to get the managers running place get kicked out.

 

I hear you, but ....

 

Keep in mind that DB workers are represented on the Supervisory Board, and would also have (as german citizens) a 50%-1 vote on the Management Board (good for politicians getting re-elected). And for the Bundesbank to not get its way, every single opposing shareholder would have to vote together to achieve the 50%+1 majority rule; theoretically possible, but extremely unlikely. The Bundesbank will have de-facto nationalized DB, for 1/2 the cost. Very german.

 

The Bundesbank is also independent, and not subject to populist vote or government wishes; they only have to comply with their mandate. We both agree the Bundesbank wouldn't hesitate to nationalize, we just think that once it is done there will still be public shareholders, and shares trading on the various exchanges around the world.

 

SD

[John Hjorth]

Having worked there and having worked pretty closely with the new CEO and COO in the past I can only reiterate that the definition of stupidity is doing the same thing over and over and expecting a different result.  They are smart and capable but they are definitely not "shake up the institution", "do things differently", "take the bull by the horns" candidates.  They are status quo.  For that reason I can't imagine why the existing issues will go away, the direction will change or the results will be materially different.

 

I'm reposting this post by dwy000 by quoting here, to remind myself not to waste time looking at DB again. This situation is to me actually more scary than the existing dislocations in parts of the European bonds markets, which have caused CoBF being flooded with gloom & doom posts recently.

[RuleNumberOne]

Since the last comments on this thread, DB stock has gone lower. DB market cap $15 B.

 

Societe Generale, France's largest bank: market cap $27 B.

 

FT spends all its time bashing and blaming Trump for everything. How about looking into Europe's finances for a change? If investors want to read Trump-bashing, they can turn on CNN.

[schin]

Not to change the topic, but does anyone hold any EU bank positions? Seems interest rates are still on the back burner until 2020-21ish. LEAPS are starting to look attractive but timing is a bit hard to pinpoint.

 

SAN and Eurobank are reasonable positions for me. Sberbank is one of my largest holdings, but may not qualify as European.

 

Tiny position in DB.

 

What is your thesis on Sberbank over others. The PE is amazing cheap, but I didn't know it's market cap was as big as it is... but, it is dominate in Russia.... but, it's trading close to book.

 

DB since May 2019 went from $6 to $9.  I know the pandemic has hit and everyone is suffering, but it seems to be executing on its restructuring plan and Tier 1 is getting better. Still bullish on DB.

 

Christian Sewing is a doing a great job.