Deutsche Bank AG (DB)

This has been one train wreck after another. Governors are involved; regulators are involved. Even though there are expectations that rates are going to rise, this is probably one of the most damaged stories in financials. There is probably more upside in the US banks.

Financial Crisis on the Horizon? If we go through another crisis but in Europe, Canadian banks will fall in sympathy, however European banks have gone down for a couple of years and Canadian banks have not. If you are nervous, you should raise some cash and be ready for a dip.

She thinks it is best to stay away from most of the money center banks. There is so much under the covers that we cannot see. She is not comfortable owning any of them right now.

This bank expanded quite aggressively into the capital markets business. When 2008 came along, they didn’t cut back on capital markets, specifically the debt business which they were very big in. That is really hurting. Retail banking in Europe does not have the kind of ROE that you get in retail in North America or the UK. You would have a better opportunity in a US bank because they are probably just as cheap and with better prospects.

Just added this to his portfolio. Just eliminated their dividend. With the Basil 3 Accord coming up, every bank, mostly European, are worried about their capital ratios. This one is selling for half its tangible Book Value and is very cheap. The issue is, do they have any more fines to pay.

He would stay far away from this bank. On the investment banking part of their business, with fixed income, earnings are very volatile and uncertain. Trading at a significant discount to its BV for a reason, because its ROE is very low. All those uncertainties make him nervous.

This definitely has headwinds with Greece, which has a government that is going to default on their debt. As one of the major European banks, this has been affected by the possibility of a Greek exit. However, anybody that has exposure to Greece should be out.

Stands out because of the large exposure to Germany, one of the strongest countries with better growth. The bank has their issues behind them. They have gone through capital rebuilding, did a rights issue and the next couple of years are going to be well into the double digits for earnings growth. It is trading at a 30% discount to tangible book value. He just bought in December.

This and some of the other European banks are all in the same boat. They are going through stress tests. It is early on. He was looking at this one recently, but hasn’t made a decision what he is going to do. Would like to know how much exposure they have to Russia. European banks are a year or 2 behind the US banks, so they may have to go sideways for a bit longer until things clean up in Europe. When they do, these banks are not going to fail. They are through the worst of it.

He would think of European banking exposure in 2 ways. The 1^st would be the interest rate increases, but the recovery you are going to get will not be immediate It may be a 2017 story. At the same time you are also seeing the stress test that is starting to occur when a company’s assets added some equity raise to some of these banks. You are still seeing a very weak economy. He doesn’t see any upside in the next year or 2.

Like a lot of European banks, with the new capital requirements they had to do a very significant rights issue and had to raise a lot of capital. That is dilutive to shareholders. However it doesn't look expensive and he continues to look at this. They're going to suffer a little bit with the slowing European economies, but he could be talking about this on one of these shows someday.

Long Bundesrepublik Deutchland 3.25% 1/2020 Bond and Short Deutsche Bank 5.00% 6/2024 Bond. (Top Pick May 15/14, Up 2.07% / Down 2.75%) A defensive trade. The banking sector has turned around a little in Europe. It would no longer be his top pick.

Not as good an upside as BAC-N. DB-N’s investment bank is not as good as BAC-N’s. You have to be number 1-4 to make all the money and DB-N is below that. They also don’t have a huge retail brokerage franchise. It is not an expensive stock and is one of the better European banks.

They have had a number of challenges. He does not think the EU banks had received direct injection of funds. The UK offers better opportunities. Be careful on continental Europe.

He is looking seriously at this one. Issued a right’s issue, which bolstered the capital. Like everybody else they paid billions of dollars in fines to the US government and their agencies. They appear to be finally well-capitalized again. Trading at around a 52-week low. 2.9% dividend yield.