Peter Isackson | Though the cost of the fine imposed on the bank by New York authorities will only make a small dent in its earnings, Deutsche Bank promises to learn how to perfect its methods of due diligence.
It is only a question of time and the markets are waiting: there will be more consolidation operations in the European banking sector in the next few years, some of them cross-border.
Spanish banks are last in Eurozone in Tier 1 and penultimate in regulatory capital. But they have an unquestionable competitive advantage: they are the only transparent ones in the Eurozone for the ECB and for the other investors being the only audited ones. There are no skeletons in the closet even if there is less capital to compensate.
The share price of Deutsche Bank has risen + 9% since 26 October. This reaction is explained by the entry of Hudson since the results for Q32018 were unconvincing and the reaction to the stress tests did call attention. The US hedge fund Hudson Executive Capital has invested 550 M€ to take control of 3.1% of the capital – equivalent to 8.6€/share. Hudson thus becomes the fourth largest shareholder behind the Chinese group HNA (7.6%), a Qatari fund (6.1%) and Blackrock (5%).
German main bank expects to report pre-tax profits of around €700 M and a net profit of €400 M for the second quarter of 2018. However, some analists do not agree with Deutsche Bank´s optimism. For example Alphavalue points out that the bank has shown sleight of hand in selling results that appear better than they are.
Deutsche Bank has begun the process to sell its retail banking business in Spain and expects to receive non-binding offers before July 18. The sale price is not known, but according to the economic press, the bank’s initial intention was to obtain up to 2 billion euros from the disposal.
Caixabank has informed Deutsche Bank’s management team of its interest in the German bank’s Spanish subsidiary in the event of a sale. The approach was made in 2016, before Deutsche Bank reached an agreement with the US Department of Justice to reduce the fine for selling “subprime” mortgages to $7.2 billion
The company is a great business that can raise €8bn to essentially hand over the proceeds to the US courts without destroying its market cap (c.-10% on the news). “Hats off then to Mr Cryan, the CEO of Deutsche Bank, for keeping the benefits of the doubt for more than a year into the job”, says Carax- Alphavalue’s analysts.
Deutsche Bank is still betting on the Spanish property market and has bought €400 million in doubtful property developer loans from Bankia. The deal was carried out by the German bank’s funds, which could have paid around 150 million euros for the assets.
Out of the 33 banks subjected to the Federal Reserve’s stress tests, 31 have passed this year, which means they will be able to increase their dividends and share buybacks. On the other hand, Deutsche Bank and Banco Santander failed the tests due to the Fed’s doubts about their capacity to measure risk.