Daily Management Review

Shares of Deutsche Bank go up sharply


Deutsche Bank has shown a significant increase in securities after a prolonged crisis, Bloomberg writes. It amounted to 57% over the last three months of 2016, while the trend has been negative a few quarters in a row, starting from the II quarter of 2015. As the newspaper writes, such optimism of investors can be explained by the fact that penalties imposed on the bank did not have a material adverse effect on the institution. At least, they did not affect financial results of the bank. In addition, high inflation in Europe and increase in the key rate in the US are promising to profitability. Paper of the bank were traded at $ 18.94 as of December 16.

Earlier, the US Department of Justice demanded that the bank pay 14 billion dollars because of the organization’s participation in fraud in the mortgage market. This provoked a big problem. Deutsche’s shares has been diving down for quite a long time. 

Against this background, Deutsche Bank unexpectedly reported a financial gain in the III quarter of 2016. The bank's profit in the reporting period reached 256 million euros (279 million dollars). Earlier, 14 analysts polled by Bloomberg forecasted that Deutsche Bank’s loss of for three months could have reached 394 million euros. Trading revenue thus increased by 10% and also exceeded expectations.

In November, Deutsche Bank announced a new plan to save itself from financial ruin. Independent crisis managers issued a recommendation on "labor readjustment" for 5,000 people. "The bank needs to continue "cleaning" in the near future. Now, management of Deutsche Bank is facing a difficult task: to throw thousands of employees off the balance, or to continue the institution’s journey to bankruptcy and default," - says Ulrike Bischoff, an economist of analytical center of Landesbank Hessen-Thueringen. He recalled once Commerzbank fired more than 7 thousand people, which allowed the bank to stay afloat.

When business goes uphill, banks seek to expand its presence in the market and holds on to each investor. In difficult times, however, the financial institutions have to carry out thorough analysis of all its clients.

Deutsche Bank’s world stock markets and bonds division, called Global Markets, is going to get rid of a substantial part of the clientele. Such non-standard decision was taken due to hard times and the need to save money. In total, the bank is going to ‘fire’ about 3,400 customers, according to a publication of Matt Turner on a portal Business Insider.

Analysis of commercial operations forced the largest credit institution in Germany make thorough weeding in ranks of the rich clientele. As it turned out, 80% of revenue from securities trading was received from only 30% of investors. Remaining 70% accounted for 20% of revenues. Therefore, Deutsche Bank decided to discontinue contracts with about half of investment banking clients. Naturally, it will say goodbye to those who are at the bottom of the list.

In 2016, influential US rating agency Moody's downgraded Deutsche Bank credit rating of to the level of Baa2 (degree of reliability "below average"). Now the German banking giant is just two points from falling into the "trash rating."

source: bloomberg.com, businessinsider.com