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Deutsche shares volatile after 6 2bn loss

Article By: ,  Financial Analyst
October 8, 2015 10:47 AM

Deutsche Bank investors had an anxious night after it unexpectedly reported a €6.2bn loss late on Wednesday evening.

With the DAX shaky after being run over by Volkswagen’s emissions scandal, there was risk the wider market could be hit too.

In the event, both Deutsche and European markets were dented at the open but not particularly sharply.

This might change of course, as volume picks up when US traders reach their desks.

$DB is one of the more widely traded European constituents of the NYSE.

For now, it looks like the gambit by DB’s new management led by John Cryan was correct.

It made sense for Cyran to announce a set of charges and risk of cancelled dividend as soon as possible.

  • €5.8bn goodwill impairment on intangibles in Corporate Banking & Securities/Private & Business Clients
  • €0.6bn write-down of stake in Hua Xia
  • €1.2bn litigation charge

 

With the stock not having traded above book value in years, for warier investors, last night’s news was not entirely surprising.

Another buffer for DB shares may be that the impairments of goodwill and on the stake in China were capital-neutral.

Q3 Core Equity Tier 1 Capital ratio will be intact at 11%, the bank said, around market forecasts and within regulatory prescriptions.

To be sure though, there’s little doubt tougher capital charges are coming.

(The scrapped dividend is estimated to be worth c. €1bn).

Deutsche’s main businesses, investment banking, corporate and retail, are simply not as profitable as they were.

It’s also a different age of leverage than the old one, though previous management strategy didn’t reflect this.

Which way the cost and potential disposal dominoes will fall is the crux of the uncertainty going forward.

Especially as DB gets on with the more difficult task of slashing costs and reducing the balance sheet.

 

Volatility was the most obvious characteristic reflected in DB’s intraday chart (four-hourly intervals) at online time.

Whilst the stock had turned higher at the time of writing, the chances that it will advance much further on Thursday could be limited by resistant highs in late August (c.€26.80) and early September (~€27).

There’s also a chance that 61.8% of the decline from the latter (€25.48) could still be in effect.

 

DAILY CHART

 

Please click image to enlarge

 

 

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