This Is What An Ongoing Trainwreck Looks Like

When it comes to floundering under the weight of legacy litigation costs (both real and psychological), nobody does it like Deutsche Bank.

It’s just on and f*cking on.

Benchmark manipulation, sanctions flouting, you name it and Deutsche Bank has been accused of it.

Hell, there are even allegations (and this doesn’t get much press) that had the bank been forced to mark a series of leveraged super senior trades with Canadian conduits ca. 2007 to market, Deutsche might have required a state bailout in 2009…

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In short, they are never going to get out from under this if you ask me (and just trust me when I tell you that I’ve got a pretty good read on it).

There’s certainly quite a bit of “franchise damage,” as Goldman put it on Thursday morning after the bank turned in pitiful operating results for Q4.

Deutsche’s shares plunged in overnight trading.

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Here’s a snapshot of the quarter:

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(Goldman)

And for those interested, here’s what analysts think (via Bloomberg):

CITIGROUP (sell/high risk)

  • 4Q earnings bring capital improvement at a “heavy cost”
  • Expect mid-single digit downgrades to consensus estimates for EPS
  • CET1 ratio rose 80bps to 11.9% beating consensus for 11.4%
  • CET1 gain due to 7% reduction on RWAs
  • Underlying group pretax loss EU0.3b is a clear miss due to weaker revenue, heavier loan losses
  • Statutory pretax loss EU2.4b is also worse than consensus
  • Most of miss is due to Global Markets and Corporate Center
  • Underlying Global Markets pretax loss loss EU0.3b due to “very weak revenue”
  • Private, Wealth & Commercial Clients underlying pretax loss EU31m is “materially below consensus” due to revenue
  • Deutsche Bank still burdened by need to resolve legacy matters

citi

EQUINET (neutral)

  • 4Q results miss on higher than expected one-time items
  • CET1 increase to 11.9% should partly ease investors concerns about capital
  • Adjusted costs declined 7% y/y
  • Pretax loss EU2.4b compares to consensus est. for loss of EU1.6b, Equinet est. for loss of EU1b
  • Revenue increase of 6% to EU7.1b met Equinet estimate
  • FICC revenue growth of 11% missed Equinet estimate for 15%
  • Equity trading revenue fell 23% vs Equinet estimate for gain of 5%

RBC CAPITAL MARKETS (sector perform)

  • Revenue trends were disappointing, especially in IB
  • CET1 better than expected at 11.9%
  • Outlook is more upbeat than RBC expected, signals 2017 revenue growth, which looks “ambitious”
  • Notes “long list of on-offs” with litigation EU1.6b vs consensus EU1.4b
  • Global Markets underlying revenue EU1.7b misses consensus EU2.1b

GOLDMAN SACHS (neutral)

  • 4Q operating result is “very weak” even as there were “strong liquidity metrics” and there is evidence of franchise damage
  • 4Q loss of EU1.9b is more than expected; underlying divisional pretax missed “across the board”; underlying divisional pretax was EU320m loss vs consensus for profit of EU210m, Goldman est. for profit of EU450m
  • IB revenue was weak, rose just 6% vs U.S. peers up 18%; FICC revenue increased 10% vs U.S. peers up 43%; Equities down 23% vs U.S. peers’ up 3%
  • CET1 ratio at 11.9% is positive, due to “sharp” RWA reduction by EU27b to EU358b
  • Liquidity reserve gained EU18b in quarter to EU218b
  • Litigation reserve rises EU1.7b to EU7.6b of which EU4.6b earmarked for cases already settled

***

Trade accordingly.

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