Deutsche Bank Is A 'Work-In-Progress, But Overly Discounted'

• Deutsche Bank AG (USA) DB shares have declined 24.06 percent over the past one year, dropping close to their 52-week low on January 6, at $23.14.
• Barclays’ Jeremy Sigee has upgraded the rating on the company from Equal Weight to Overweight, with a price target of €28.
• Sigee views the company as “work-in-progress,” and while Deutsche Bank still faces several challenges, its stock is “overly discounted” at present.

According to the Barclays report, “Deutsche Bank is in the early stages of reshaping a FICC-heavy investment bank, and has less support than peers from other business lines. It has flagged restructuring charges and conduct penalties in coming quarters.”

Analyst Jeremy Sigee believes, however, that financially, these issues appear manageable, given that the company has sufficient capital and reserves. In addition, the consensus earnings forecast point to ROTEs of 8-11 percent.

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Deutsche Bank’s CET1 ratios are expected to reach 10 percent Basel-4 in 2016, while crossing 12 percent in 2018, even if the company needs to pay additional conduct penalties of €4-7 billion on top of the existing reserves of €5 billion.

Catalysts Ahead

Also, Sigee mentioned that visibility into the company’s investment bank would act as a key catalyst to the stock, saying, “For the shares to rehabilitate fully, investors need visibility on reshaping and returns in DB’s investment bank. The strategic plan left questions, but clarity should improve from here.”