Credit Starts Coverage Of Deutsche Bank And UBS, Expects Them To Lag U.S. Bank Peers

“Following a detailed comparison of European and US deleveraging costs, litigation risk and capital adequacy, we find we are below consensus on EU EPS and DPS forecasts,” Credit Suisse’s Jon Peace stated in a report.

Analyst Peace added that both UBS Group AG (USA) UBS and Deutsche Bank AG (USA) DB would likely lag their US peers, with earnings estimates and capital returns continuing to diverge.

UBS

Peace initiated coverage on UBS with a Neutral rating and a price target of CHF15. He mentioned that his EPS forecasts were 2-5 percent below consensus. While UBS could keep the 2016 dividend unchanged at CHF0.60, there is “limited possibility for dividend surprises thereafter.”

UBS has a profitable business mix, with around 60 percent of earnings from wealth and asset management and 20 percent from Swiss retail. The analyst pointed out, however, that the company could post disappointing results in the back half of 2016 due to margin pressure.

Moreover, there is downside risk from litigation and tax investigations. Peace commented that the Neutral rating would be retained until UBS “is able to show superior earnings momentum.”

Deutsche Bank

The analyst initiated coverage on Deutsche Bank with an Underperform rating and a price target of EUR13. He mentioned that the company could post a loss again in 2017, while consensus expectations are for an EPS of EUR0.79.

Peace believes that Deutsche Bank would again decide to not pay dividend in 2017 in an attempt to offset weak organic capital generation.

“We see downside risk to 2017 earnings as deleveraging and mix weigh on revenues and high litigation charges weigh on costs. While we expect the US DOJ RMBS case to be settled well below the USD14bn first claimed, the uncertainty is an overhang and in any case we think litigation will remain a strong drain on capital generation through 2017,” the Credit Suisse report stated.

An impairment of EUR2 billion for Postbank was likely before sale, and therefore 2017 is expected to be another loss year for Deutsche Bank.

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