Deutsche Bank may be "beyond repair" unless there's a "miracle" boom at its once-mighty bond-trading business, according to Autonomous Research.
The firm’s “faltering” fixed-income and currency markets franchise, which generates about a quarter of profits, can no longer be counted on to drive earnings, Autonomous co-founder Stuart Graham said in note.
Adding to the German lender’s problems, more than a decade of underinvestment in technology has left it a “clear laggard” to rivals such as JPMorgan Chase, while misconduct scandals have tarnished its reputation with clients.
“When we consider the basics of what makes a bank a winner – trust (or brand), balance-sheet muscle, technology and its people – Deutsche looks to be in very bad shape,” Mr Graham said. “In such situations it is inevitable that some investors start to question whether the bank has the right leadership.”
Germany's Handelsblatt cited an unnamed investor this month as saying he believed that chief executive Officer John Cryan wasn't the right person for the job.
Morale undermined
Deutsche Bank’s share price has declined 45.5 per cent since Mr Cryan took over as CEO in July ,2015 as two straight annual losses of a combined €8.2 billion eroded capital and undermined morale at the bank. However, a large chunk of the losses resulted from provisions for legal cases originating long before Mr Cryan’s tenure.
Since the turn of the century Deutsche Bank has failed to keep pace with IT spending at JPMorgan. Deutsche Bank’s annual investment was roughly the same amount as the US firm in 2000. This year it has slated to spend $4.1 billion, compared with the $7.4 billion JPMorgan is forecast to spend, Autonomous estimates.
“This falling behind on technology matters a great deal, in our view, since 65 per cent of Deutsche Bank’s total group revenues come from businesses which compete head-on with JPMorgan,” Graham said.
Autonomous also highlighted the bank has struggled to retain senior staff after axing bonuses and turnover of its best revenue producers is higher than at peers such as Barclays.
“Given all of these problems, we simply do not think Deutsche is cheap enough” even after the “share price has performed horribly year to date,” Graham said. With better returns on offer at other banks, “why bother owning Deutsche?”
– Bloomberg
