JPMorgan Steps To The Sidelines On Deutsche Bank

JPMorgan’s Kian Abouhossein expects CoE to increase for banks exposed to U.K. credit, following the U.K.’s vote to leave the EU.

Analyst Kian Abouhossein downgraded the rating on Deutsche Bank AG (USA) DB from Overweight to Neutral, while lowering the price target from €23 to €15.

Cautious Stance

The analyst reconfirmed a cautious stance on the banking sector, given the significant uncertainty regarding the U.K. and EU banking sector, and stated that the base case scenario was that of “a slowing EU economy leading to lower rates.”

Abouhossein expects a significant impact on IBD activity during 2H16, driven by the macro uncertainty that the Brexit vote has led to.

Related Link: JPMorgan: Goldman Sachs Will Perform Better Than Peers

“On trading revenues, while macro revenues could have a short rebound due to better Rates and FX performance from higher volatility, we do not see it as a sustainable source of revenues in the medium-term,” the analyst mentioned.

Revenues Impacted

In addition, SPG and credit revenues were expected to be further negatively affected in the current environment, given the widening of spreads.

Abouhossein believes “the significant decline in IB revenue environment with no clarity on passporting issues could potentially weigh on the IB performance in short to medium term.”

The EPS estimates for 2016–2018 have been materially cut, following the Brexit vote.