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Deutsche Bank Shows Capital Strength, Legal Costs a Drag


On Nov 6, we issued an updated research report on Deutsche Bank AG DB. Its initiatives to improve performance through expense management and strengthening capital position will likely lend support to the stock. However, persistent margin pressure and high legal costs might offset the positives to some extent.

Shares of Deutsche Bank have gained 18.2% over the past year, underperforming the 23.1% rally for the industry.

The company’s Zacks Consensus Estimate for the current year has remained stable over the past 30 days. As a result, it currently carries a Zacks Rank #3 (Hold).

The bank has taken steps to reduce expenses, which was reflected in its results over the past few quarters. Management expects to continue controlling overall expenses despite increasing legal costs.

Deutsche Bank remains committed to improve its capital position and targets achieving Common Equity Tier 1 ratio of above 13% and Leverage ratio of minimum 4.5% at the end of 2018. Also, the recent stress test conducted by The European Banking Authority revealed the bank’s progress in its risk profile and capital position.

Deutsche Bank has significant involvement in legal matters, of which some have been settled. However, this is likely to keep expenses on the higher side in the near term. Further, in order to settle a pending case over manipulation of the U.S. dollar, LIBOR (the London Interbank Offered Rate) and other benchmark interest rates, it signed a $220 million agreement with the authorities. Also, in January 2017, it paid $7.2 billion as fine over its sale of toxic mortgage securities. These legal settlements have made a significant impact on its financials.

Moreover, Deutsche Bank continues to face margin pressure due to a low interest rate environment in the European economy.

Stocks to Consider

The Goldman Sachs Group GS witnessed an upward earnings estimate revision of 4.3% for the current year, in the last 30 days. Its share price has increased 8.2% in the past six months. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BlackRock BLK carries a Zacks Rank of 2. For the current year, in the last 30 days, its Zacks Consensus Estimate was revised 1.1% upward. The company’s share price has increased 24.4% in the past six months.

Ameriprise Financial AMP has a Zacks Rank of 2. The company witnessed upward earnings estimate revision of 5.9% for the current year, in the last 30 days. Its share price has increased 25.1% in the past six months.

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