Opinions
David Fingold
Deutsche Bank AG
DB-N
DON'T BUY
Apr 10, 2018
Stock price when the opinion was issued
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DB has fallen 94% since just before 2008 and on paper, this is a very similar pattern to CS. DB is down ~6% today and its Credit Default Swaps (CDS) have been moving substantially higher today, indicating that investors are paying up for insurance in the event that DB fails or defaults. At times, these events can become a self-fulfilling prophecy, and a material decline in its share price can lead to fewer funding options and a worse liquidity picture for the company. The Fed and other central banks around the world established open swap lines the other weekend so that in the event of depositors withdrawing funds from a foreign bank, that foreign bank can call upon the Fed and receive par for US Treasury Bills, even if they are well below par on the market. This was not established when CS failed, and we feel that this might help to alleviate any issues with DB.
Overall, as we've learned, these events can happen fast, and we're not ruling out the possibility of DB failing, but everyone, including the Fed and the US Treasury are keeping a closer eye on these possibilities and we think that higher level of scrutiny should help to quickly respond to any weaknesses in the bank.
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He would stay away from it. They are mostly focused on lines of business that are shrinking. For example, they do a large business in writing letters of credit, but international trade has been shrinking, as a percentage of GDP, for years. Deglobalization started in 2010/2011 has been happening for years, since Accenture concluded that offshoring probably cost money rather than saving money. There is now a trend of nearshoring: jobs are coming home because costs are lower here. You don’t need letters of credit when you are moving within a region. Also, they face capital strain under Basil III. They were a very significant underwriter of mortgage-backed securities. Sub-Prime and Alt-A products basically don’t exist any more, so Deutsche Bank no longer offers that mix of products; it is now marketing a low-margin product. A recent report from JP Morgan can be summarized as “They should shut their New York branch and go home.” They have been severely impacted by Tax Reform and their financing in the US appears to be high cost.