Goldman Reviews Deutsche Bank's Credit Risk

Goldman Sachs’ Louise Pitt believes Deutsche Bank AG (USA) DB continues to focus on litigation settlements into Q4, although the company’s liquidity is robust, capital has improved and reserves have increased.

“We continue to recommend adding risk to the 6.52 percent AT1s, and think the market is pricing in too much coupon non-payment risk,” Pitt mentioned.

Litigation And Liquidity

Among the key takeaways from Deutsche Bank’s Q3 results included management’s comment that it was “working hard on achieving a resolution of this issue as soon as possible” and that litigation charges added up to 0.5 billion during the quarter.

The analyst stated, “[L]iquidity resenes have stabilized since the volatility at the beginning of October and levels are ‘largely unchanged’ from the end of 3Q,” while adding that “positive operating trends were driven by stronger revenues in the IB business.”

Challenges And Investor Concerns

Management also indicated that the business environment was likely to continue to be challenging for the CIB for the rest of 2016, driven by negative rates in key markets, volatile market conditions, geopolitical uncertainty and ongoing regulatory pressures.

However, Pitt added, “[I]nvestor concern remains largely on the resolution of the outstanding litigation issues and the potential impact the company's ADI and capital levels.”