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Deutsche Bank's US Stress Test Worries European Regulators

Zacks Equity Research

Per an article by Reuters, European Central Bank regulators are concerned that Deutsche Bank DB might fail the public stress test of its combined U.S. business, conducted by the Federal Reserve. In the past, the German lender had thrice failed to impress the regulator with its financial standing.

Another failed attempt is likely to affect the confidence of Deutsche Bank’s customers and investors on the bank’s financial performance. Also, a European bank supervisor told Reuters that the Fed may impose restrictions on the bank’s expansion capabilities in the United States, in case Deutsche Bank fails.

Though the bank has worked toward improving its internal control processes and has addressed certain other weak areas, it still requires to bolster capital determining processes.

Along with concerns regarding stress tests, Deutsche Bank is facing pressure for restructuring its investment bank unit after merger discussions with Commerzbank collapsed. Several investors and even credit rating agencies have put forth similar opinions.

However, CEO Christian Sewing sees no need for curbing presence in the United States and Asia at the time. Notably the securities unit reported 13% decline in revenues for the first quarter.

Though Deutsche Bank’s restructuring efforts like cost-saving measures look encouraging, it is really difficult to determine how much the bank will gain, considering the lingering headwinds. Moreover, dismal revenue performance remains another concern.

Shares of Deutsche Bank have declined 22% over the past six months on the NYSE against 2% growth recorded by the industry.

The stock currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are The Bank of N.T. Butterfield & Son Limited NTB, ICICI Bank Limited IBN and Banco Latinoamericano de Comercio Exterior, S.A. BLX. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Bank of N.T. Butterfield has been raised 7.4% for the current year in the past 30 days. The company’s share price has jumped 12.7% in the past three months.

ICICI Bank has witnessed stable earnings estimate for 2019 in the past 30 days. Its share price has risen 15.1% in the past three months.

Banco Latinoamericano’s shares have gained 12.1% in three months’ time. Its earnings estimates for 2019 have moved up 3.4% in the past 60 days.

Zacks' Top 10 Stocks for 2019

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ICICI Bank Limited (IBN) : Free Stock Analysis Report
Banco Latinoamericano de Comercio Exterior, S.A. (BLX) : Free Stock Analysis Report
Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
Bank of N.T. Butterfield & Son Limited (The) (NTB) : Free Stock Analysis Report
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