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Deutsche Stock Falls on Being Listed Troubled by Regulators

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Per a Wall Street Journal’s article, Deutsche Bank’s DB U.S. unit was placed under troubled bank’s list by the Federal Reserve almost a year back, following which, the Federal Deposit Insurance Corporation (“FDIC”) put it under its own list of problem banks.

FDIC’s website mentions that the “problem” lenders are those that have “financial, operational, or managerial weaknesses that threaten their continued financial viability”. Also, the regulators feel that the bank’s methodology for measuring exposure to its clients and for valuing the collateral backing its loans is a matter of concern.

The news led to a 4.2% decline in the bank’s shares on the NYSE, reflecting loss of investors’ confidence.

Deutsche Bank has been constantly facing hurdles, challenging the recently appointed CEO Christian Sewing’s plans for the bank’s turnaround.

Ratings of Deutsche Bank have been downgraded a notch by S&P Global Ratings, citing significant changes in leadership as a key negative. The agency said, "significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop, and we think that, relative to peers, Deutsche Bank will remain a negative outlier for some time."

However, the agency complimented the bank for its strong capital and liquidity position and said that it expects its strategies to bear fruits in a few years.

Further, the Germany-based lender is facing cartel charges for its role as an underwriter for a $1.9 billion share sale by Australia & New Zealand Banking Group Ltd. in 2015.

Deutsche Bank’s U.S. operations will have to undergo a public stress test this year in order to show that it has sufficient financial strength to counter any downturn. If it fails the test, Sewing will be forced to take some concrete steps.

All this bad news comes after the CEO announced job cuts to achieve impressive cost savings target and plans to remain committed to the United States. The bank finds its financial strength to be “beyond doubt” and remains focused on completing its restructuring overhaul at the earliest. Also, Deutsche Bank promises to focus on areas that have been identified as weak in its U.S. operations.

In a year’s time, the bank’s shares have lost 37.3% on the NYSE against 5.3% growth recorded by the industry.

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

Some better-ranked stocks in the same space are Credicorp Ltd. BAP, Banco Santander Chile BSAC and The Bank of N.T. Butterfield & Son Limited NTB. 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 Credicorp has been raised nearly 1% for the current year, in the last 60 days. The company’s share price has jumped more than 37% in the past year.

Banco Santander Chile has witnessed stable earnings estimates for 2018, in the last 60 days. Its share price has risen more than 34% in the past year.

Bank of N.T. Butterfield & Son’s shares have gained more than 45% in a year. Its earnings estimates for 2018 have moved up 4.1% in the last 60 days.

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