VALUATION HIGHLIGHTS

1. Corporate Bank constitutes 40% of the Trefis price estimate for Deutsche Bank's stock.
2. Sales and Trading constitutes 29% of the Trefis price estimate for Deutsche Bank's stock.
3. Private & Commercial Bank constitutes 19% of the Trefis price estimate for Deutsche Bank's stock.

Latest Earnings Q4'23

Deutsche Bank reported strong performance in the fiscal fourth quarter, with the bank beating the profit estimate. Overall, the bank's net profit was down 28% y-o-y 1.4 billion euros.

Impact of Covid-19

The spread of coronavirus led to lockdowns in various cities across the globe, which affected industrial and economic activity. Deutsche Bank's retail business, in particular, was hit as the new loan issuance slowed down. Moreover, the bank's provision for loans increased due to the risk of default. That said, significant growth in the investment bank division (sales & trading and investment banking) enabled the bank to post a 4% y-o-y growth in 2020. The bank reported full-year FY2021 revenues of around $30.07 billion. However, the topline decreased by 5% y-o-y to $28.7 billion in FY2022.

Reorganization Plan

The new plan marks an overall shift towards more stable revenue sources. As per the new plan, Deutsche Bank will exit its Equities Trading business while retaining a focused equity capital markets operation. Additionally, the bank plans to resize its Fixed-Income Trading operations - particularly its rates trading business - and will accelerate the wind-down of its existing non-strategic portfolio.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Deutsche Bank's value that present opportunities for upside or downside to the current Trefis price estimate for Deutsche Bank:

Sales & Trading

• Yield on FICC Trading Securities: Deutsche Bank's yield on fixed-income securities has averaged around 5% over the period 2009-18, with the figure swinging considerably from one year to the next as market conditions change. However, this metric improved to around 7.5% in 2022. While we forecast the yield to remain around the current levels over our forecast period, if it falls by even a single percentage point by the end of the Trefis forecast period, it would mean a downside of around 5% to our price estimate.
• Investment Banking Operating Margin: Deutsche Bank's investment banking operations division's operating margin averaged below 25% between 2009-14 as a combination of weak economic conditions and large legal costs hurting profits. The figure was just -2% in 2015 due to settlement costs, while this figure improved to 10% in 2016 before settling at around 4.7% at the end of 2019. The value was around 34% in 2022. We expect margins to slightly decrease over our forecast period. However, if the margin is reduced to 27% by the end of the Trefis forecast period, then this would represent a downside of 4% to the Trefis price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Deutsche Bank at the top of the page.

BUSINESS SUMMARY

Deutsche Bank is a leading global investment bank headquartered in Frankfurt, Germany. The largest banking group in Germany, and one of the largest banks in the world, Deutsche Bank offers financial products and services to corporates, government, financial institutions, and private and business clients in 70 countries. Besides Germany and Western Europe, Deutsche Bank's growth over the years has come from the U.S. and key emerging markets in Asia.

SOURCES OF VALUE

Significant asset base, high yields, and strong operating margins make FICC Trading the most valuable division for Deutsche Bank

Deutsche Bank has roughly $120 billion in debt capital for trading fixed-income securities with a yield of around 7.5%. That said, investment banking margins have been depressed over recent years due to sizable one-time expenses. This is why FICC trading is one of the largest sources of value for Deutsche Bank.

KEY TRENDS

Recovery in interest rates

The European Central Bank (ECB) has increased interest rates in 2022 in response to the high inflation numbers.

High interest rates would make it expensive for people to borrow money. While it will likely hurt the loan growth, the bank's net interest margin will benefit from an improvement in the interest rates.

Increasing demand for investment banking services in emerging markets

With the GDP and per capita income of emerging markets growing rapidly, there is an increasing demand for capital from companies in these markets to support the growing purchasing power of the people. Also, with the integration of these markets with the global economy, there is a shifting trend in these countries from family-run businesses to corporations. As a result of these factors, an increasing number of companies in these markets are going public, leading to a growing demand for equity underwriting services. Additionally, consolidation across different sectors is driving demand for M&A advisory services.