Deutsche Bank To Hold Steady

We are continuing our Hold on Deutsche Bank AG (DB), but cutting our target price to $25. In line with earnings guidance provided on January 14, DB posted a 4th quarter loss of EUR4.8 billion and a full-year loss of EUR3.8 billion, principally related to sales and trading, especially in Credit Trading, Equity Derivatives and Equities Proprietary Trading.

The loss also reflects risk exposure reductions, increased loss provisions against monoline insurers, and other unusual gains and losses, including reorganization charges. DB also significantly reduced its exposure to leveraged loans to EUR1 billion from EUR11.9 billion at the end of 2008’s 3rd quarter, while commercial real estate was brought down to EUR3 billion from EUR8.4 billion.

This and other deleveraging measures have had a positive impact on DB’s balance sheet, with a Tier 1 ratio of 10.1% at the end of the 4th quarter versus 10.3% at the end of the 3rd quarter. This reflects a dividend accrual of 0.50 for 2008 - far below 2007’s 4.50.

In other news, DB revised the terms of its acquisition of a majority stake in Postbank from Deutsche Post AG in a 3-step process with a cash value of EUR4.9 billion, under which DB uses EUR1.2 billion less Tier 1 capital than under the prior agreement. We are lowering our 2009 estimate to $3.50 from $3.75 due to expectations for higher loan losses.

Subscribe by RSS Subscribe by Email