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Investment Overview for Deutsche Bank (NYSE:DB)
Deutsche Bank is a leading global investment bank headquartered in Frankfurt, Germany. A leader in Germany and Europe, the bank has been focusing on growing its operations in North America, Asia and other key emerging markets. With more than 100,000 employees in 72 countries, the banking group offers unparalleled financial services throughout the world.
Deutsche Bank offers financial products and services for corporates, government, financial institutions, private and business clients globally. Services include mergers and acquisitions, risk management, sales and trading, debt and equity origination, corporate finance, asset management, retail banking, wealth management, cash management, custody services and transaction banking.
Asset Value, Margins for Sales & Trading Higher Than Private Client Services
Deutsche Bank has more than $120 billion of equity capital deployed for trading purposes with a yield on capital deployed of around 4.5%, and around $210 billion of debt capital deployed for trading fixed income securities with a yield of nearly 6%. This explains why sales and trading (including proprietary trading) is one of the largest sources of value for Deutsche Bank. In addition, the Bank’s operating margin from sales & trading have historically been better than that of its private client business.
Private Client Business Has Lower Fee (%) but More Assets Than Global Transaction Banking
Private and business client service is another important business for Deutsche Bank. Deposit rates and other financial services fees are around 1% of private & business client assets, which are worth more than $420 billion. In comparison, Deutsche Bank earns fees of around 4% of total transaction volume from financial assets worth more than $130 billion in its Global Transaction Banking business.
Central Banks to keep interest rates low in the near term:
The European Central Bank (ECB) is expected to leave interest rates low in the near future as the European economy gradually recovers from the global financial crisis. Central banks in England and the U.S. are also expected to leave interest rates at current levels for the next few years.
Low interest rates would make it cheaper for people to borrow money, which would benefit Deutsche Bank by increasing demand for loans and stimulating business activities like capital-raising, as well as potentially decreasing the number of defaults on existing adjustable-rate loans. Banks can also access funds at a lower cost of capital, though the actual cost of capital would depend on credit rating.
Volcker Rule can affect Proprietary trading desk :
The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. The rule proposed by former Federal Reserve Chairman Paul Volcker is being argued on the grounds that such speculative activity played a key role in the financial crisis of 2007-2010. Volcker Rule was first publicly endorsed by President Obama in January 2010 and later on by five former Secretaries of the Treasury in February 2010.
The Volcker Rule is expected to come into law in the near future. Like most banks, Deutsche Bank's proprietary trading desks account for a small percentage of earnings, although they were larger before the global financial crisis. However, if implemented in the future, the Volcker rule can affect the proprietary revenues of Deutsche bank. As of now, the bank should be expected to be able to keep some of what it has as long as it remains outside the U.S.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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