BACK THE TRUCK UP FOR DEUTSCHE BANK SHARES?
LIKE TO SEE SOME SUPPORT FIRST!
So CEO John Cryan told the market that life at Deutsche Bank was improving as he announced an €8 billion rights issue which immediately triggered a 6.2% drop in the leading German bank’s share price – to €17.95.
The market has a memory like an elephant when it comes to bank share prices. In 2007, a year before the banking/credit crisis Deutsche Bank’s share price stood at €120. In September 2016 it fell to as low as circa €10.50. So until this morning its share price had seen a relatively dramatic rally to £19 pre the rights issue announcement over the weekend.
Why has this bank’s fortunes declined so catastrophically? Well it has been the worlld’s largest derivative and FX trading bank for 20 years. Its focus on investment bank trading was disproportionate. When US Treasury Secretary Hank Paulson closed out on Lehman with indecent haste, that act alone exacerbated what was already a very significant liability for all trading banks. Not surprisingly Deutsche Bank would suffer more than most. The losses and litigation over the last few years have been gargantuan. Deutsche has paid out over €15 billion on litigious misdemeanours on trading FX, gold and miss-selling mortgage backed securities in the US.
John Cryan the CEO, who replaced Anshu Jain as CEO in 2015 was upbeat about the future. However most of the toxic assets were acquired by Deutsche Bank whilst under the stewardship of Josef Ackermann. Mr Cryan was unequivocal for the need to cut back on the exposure to investment banking – easier said than done. The bank will also impose a further €22 billion of cuts by 2020 which will inevitably include redundancies.
Cryan’s board has had a complete change of heart about Deutsche Postbank. They will be keeping it in their portfolio, rather than selling it, which was the original idea. That makes sense as Deutsche must make sure that the emphasis of its business changes to retail and wholesale banking. However, despite the necessity to cut costs Deutsche will be selling its asset management business built out of the remnants of Bankers Trust and Morgan Grenfell (1986-1992). Until the most recent quarter fund management business had lost investors. It is relatively risk free so a surprise to me that it needs to be sold. Deutsche is close to re-introducing a divided policy. Time to back the truck up? Mmmm…… It has already had a decent run on the rails. Who knows? The cost of capital remains prohibitive. However Deutsche Bank is a very powerful brand. I would prefer to miss the first few nickels and dimes and see some momentum in its support.