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On And On…

30 October 2019 by jbchevrel

DB was the underperformer in euro fin space today post Q3 results. the 5y senior preferred CDS is wider +4 at 76, the 5y senior non preferred CDS is wider +8 at 150, the 5y senior preferred CDS is wider +16 at 325. The sub CDS curve closes small flatter -2bp between the 1y point and the 5y point. The share lost -7%. Revenue fell -15% and missed EU5.26 billion vs estimate EU5.58 billion, mostly from the Investment bank (EU1.65 billion vs EU.1.74 billion) with highlight on fixed income trading unit again, and despite the beat in Corporate bank (EU1.32 billion vs EU1.24 billion) which CEO aims to keep developing. Bottom line also missed with net loss -EU942 million vs -EU714 million loss expected. Guidance also deteriorated. DB abandoned the pledge to keep revenue flat at Private bank unit this year, citing impact of negative rates. Going forward, the credit supportives are mainly the fact that the business is in theory going for less risk and less leverage. Liquidity is still there. On the risk side of things, it still seems like a weak profit/even losses in the near term. CIR is notably higher than € gsib peers. Close to 100%. Negative rates in Europe are here to stay. The German (and therefore the € area..) economy isn’t at a strikingly strong juncture. Execution risk remains, as far as the restructuring plan is concerned and we could see the CET1 ratio falling as restructuring plan costs more than anticipated. DB’s shareholders have already put c€30B into the pot over the past decade, diluting existing ones along the way, and largely participating into the move lower (DB’s share price has lost c85% since the 2010 peak). Cutting CET1% to 12.5% area (from current stable 13.4%) is always an option although not super orthodoxic. As of end-2018, CET1 ratio was 14% which is €12B above the ECB’s 2018 SREP letter’s requirement. The upcoming BCBS Basel IV will be more stringent as well, with new ways for banks to calculate capital requirements, and some analysts earlier this year expected a potential shock of up to 5% to the CET1 ratio new calculation for DB.