Deutsche Bank’s stock (NYSE: DB) has lost 7% YTD, as compared to the 15% rise in the S&P500 over the same period. Further, it is currently trading at $11 per share, which is 17% below its fair value of $13 – Trefis’ estimate for Deutsche Bank’s valuation.
Interestingly, Deutsche Bank stock had a Sharpe Ratio of almost zero since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.27 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The bank edged past the consensus estimates of profit in the second quarter of 2023. It reported a net of $7.7 billion – down 6% y-o-y, due to lower revenues in investment bank and corporate & other divisions. However, the top line was somewhat supported by positive growth in corporate banks and private bank units, mainly because of higher net interest income. Notably, the total net interest income improved by 27% y-o-y to $4.6 billion. On the cost front, the non-interest expense as a % of revenues witnessed an unfavorable increase in the quarter. It led to a 72% drop in the adjusted net income to $562 million (Note – Deutsche Bank originally reports in € (Euros), the same has been converted to USD for ease of comparison).
The bank’s top line grew 2% y-o-y to $16.2 billion in the first half of FY 2023. However, non-interest expenses increased 10% y-o-y over the same period. It resulted in a 37% decrease in the adjusted net income to $1.9 billion.
Moving forward, we expect the net interest income to drive the Q3 results. Overall, Deutsche Bank’s revenues are forecast to remain around $31.1 billion in FY2023. Additionally, DB’s adjusted net income is likely to remain around $4.38 billion. This coupled with a GAAP EPS of $2.15 and a P/E multiple of 6x will lead to a valuation of $13.
|S&P 500 Return||-2%||15%||97%|
|Trefis Reinforced Value Portfolio||-4%||26%||547%|
 Month-to-date and year-to-date as of 9/21/2023
 Cumulative total returns since the end of 2016