Balanced View on Deutsche Bank - Analyst Blog

On May 21, 2014, we issued an updated research report on Deutsche Bank AG DB. The company recently reported dismal first-quarter 2014 results. With continuing uncertainty around emerging markets, the company recorded a deteriorating top line. Yet, prudent expense management led to a fall in expenses.

Deutsche Bank posted net income of €1.1 billion ($1.5 billion) in the first quarter of 2014, down from €1.7 billion ($2.2 million) in the prior-year quarter. Furthermore, the bank reported net revenue of €8.4 billion ($11.5 billion) in the reported quarter, down 11% year over year.

Though organic growth remained a key strength at Deutsche Bank, as reflected by its revenue growth story in the past with a CAGR of 19.9% over the five years (2008–2012), revenues dropped 5% in 2013, primarily due to a downturn in corporate banking and securities business. Further, revenues were down 10% year over year in first-quarter 2014. Continuation of such a trend will become a hindrance for bottom-line growth.

However, despite recording a CAGR of 11.3% over the 5 years (2008–2012), non-interest expenses declined 11% in 2013 and 2% in first-quarter 2014, reflecting the company's successful expense reduction initiatives. Deutsche Bank contemplates making investments of approximately €4 billion and undertaking other measures to help achieve full run-rate annual cost savings of €4.5 billion by 2015.

Amid the worldwide economic volatility, the company is focused on building its capital level. Strategy 2015+ efforts are encouraging and we expect such efforts to help improve its operating efficiency.

Following first-quarter 2014 results, the Zacks Consensus Estimate decreased 4.8% to $5.33 for 2014, over the last 30 days, while the Zacks Consensus Estimate declined 8% to $6.87 for 2015. Hence, Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell).

Key Picks from the Sector

Some better ranked foreign stocks worth considering include Banco Bradesco S.A. BBD with a Zacks Rank #1 (Strong Buy), while ICICI Bank Ltd. IBN and Lloyds Banking Group plc LYG carry a Zacks Rank #2 (Buy).

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