U.S. Markets open in 2 hrs 34 mins

Deutsche Bank's U.S. Unit Fails Second Round of Stress Test

Zacks Equity Research
1 / 1

Surging Earnings Estimates Signal Upside for Ranger Energy Services, Inc. (RNGR) Stock

Ranger Energy Services, Inc. (RNGR) shares have started gaining and might continue moving higher in the near term, as indicated by solid earnings estimate revisions.

Deutsche Bank’s DB U.S. subsidiary, DB USA Corporation (“DBUSA”) has failed the second level of the Federal Reserve’s stress test on qualitative basis. This is the first time that DBUSA publicly participated in the comprehensive capital analysis and review program.

DBUSA’s capital plan has been rejected by the Fed due to “widespread and critical deficiencies” in its capital planning. Also, the reviewer found weakness in data capabilities and controls that contribute in DBUSA’s capital planning process.

Flaws were discovered in assumptions used in forecasting revenues and losses that might be incurred from its key business lines or in a stressed environment. The regulator also found loopholes in DBUSA’s risk management area that includes model risk management and internal audit.

DBUSA, however, passed the test on quantitative basis. The Fed concluded that even in a severely adverse economic scenario, DBUSA’s Common Equity Tier 1 capital would remain above the minimum requirement of 4.5% and would not fall below 12.2% over the nine-quarter planning horizon. The regulator also found that DBUSA’s Tier 1 Leverage Ratio would remain well above the regulatory minimum of 4% and would not fall below 5.7%.

As Deutsche Bank has been added to the list of troubled banks, the market had been expecting that it might fail this year’s stress test. However, the stock gained 1.4% on the NYSE in the last day’s trading session, reflecting investors’ positive reaction to the Germany-based lender’s promise to improve capital planning capabilities.

In its press release, Deutsche Bank said, “DB USA Corporation has made significant investments to improve its capital planning capabilities as well as controls and infrastructure. DBUSA continues to make progress across a range of programs and will continue to build on these efforts and to engage constructively with regulators to meet both internal and regulatory expectations.”

Among other foreign banks, units of Credit Suisse CS, Royal Bank of Canada RY, UBS Group AG UBS and Barclays also faced the qualitative test for the first time, each passing with flying colors.

Concerns over persistent pressure on revenues due to low interest rates in domestic economy along with involvement in several legal issues have resulted in Deutsche Bank losing 44.2% on the NYSE so far this year compared with 11.8% decline of the industry.

Deutsche Bank currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Credit Suisse Group (CS) : Free Stock Analysis Report
UBS Group AG (UBS) : Free Stock Analysis Report
Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
Royal Bank Of Canada (RY) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research