(Bloomberg) -- These days, the path of Deutsche Bank (DE:DBKGn) feels a little bit like the final season of a long-running TV show. The latest plot driver: the lender’s stock regularly hitting new lows.
It was always clear that Christian Sewing would have much less time than his predecessors to get the bank’s problems fixed and tell the tale of a finally successful turnaround.
With the stock dive and with many issues like interest rates and the state of the European economy out of his control, his options are becoming limited.
It’s no surprise that during last week’s annual shareholder meeting he had to announce deeper cuts into the bank’s investment banking. While details about the next steps are not yet known, the history of investment banking restructurings shows that it often comes along with some sort of bad bank to wind down risk-weighted assets.
And it looks like Deutsche Bank is mulling an overhaul and may face the unfavorable option of yet another capital raise to handle this.
Meanwhile, management has to focus on the things it can control, mainly costs. Various problems arise on that front: first, cost-cutting campaigns are usually not sexy enough to lure new shareholders, it usually takes time to see the benefits of the cuts, and there is no guarantee of success as it almost always comes with further market share erosion, which can trigger more cuts, and so on.
It also might lead to an exodus of talented people, and some cracks are already showing up with key figures mulling plans to leave the lender.
It’s true, Deutsche Bank shares are cheap compared to its European peers, but the stock price needs more than pure valuation. It needs a good story to make people comfortable to invest in future returns.
Bankhaus Metzler analyst Jochen Schmitt wrote in a recent note following a meeting with Sewing that the first major cost savings were likely to kick in next year and that the bank’s ability to at least halt or reverse the revenue decline and regain earnings power is “still a key risk.” That means the stock might remain a joyless investment in the short term.
Euro Stoxx 50 futures are trading 0.3% higher ahead of the open, while FTSE 100 futures are up 0.5% as U.K. markets return from a public holiday.
SECTORS IN FOCUS TODAY:
- Watch trade-sensitive sectors: The U.S. isn’t ready to make a trade deal with China and American tariffs on Chinese goods “could go up very, very substantially, very easily,” Trump said on a state visit to Japan on Monday.
- Watch automakers: shares in Chinese automakers rose after news reports that more car license plates would be allotted in Guangdong as part of local plans to boost consumption.
- Watch U.K. stocks: U.K. equity markets reopen for the first time since the European election results were revealed. Nigel Farage’s Brexit party performed well, drawing former UKIP voters and disillusioned Brexiteers from the Conservatives and Labour, while the remain vote was split between other smaller parties that want to reverse the divorce. Sajid Javid joined the lengthy list of Tories vying for the U.K. premiership.
COMMENT:
- “In our view, the European Commission will provide a negative assessment of the Italian Stability Programme,” Goldman Sachs (NYSE:GS) writes in a note. “This will likely start a contentious dialogue with the Italian government which will lead to investor concerns similar to those of last year. We anticipate that market pressure will force Italian and European policymakers to compromise on their respective demands. That said, timing such a compromise and a subsequent period of a more positive market sentiment towards Italian assets is more challenging in the context of weak economic fundamentals.”
COMPANY NEWS AND M&A:
- Vivendi’s Canal Plus to Buy M7 From Astorg for About EU1B
- Aviva (LON:AV) May Split U.K. Business in Shake-Up: FT
- Nissan’s Saikawa Says Renault (PA:RENA), Fiat Merger Talk ‘Positive’: Jiji
- Semperit First-Quarter Revenue Meets Estimates
- Banca Ifis Focuses on Organic Growth, CEO Tells Il Sole 24 Ore
- Nordex Group to Install 198 MW Wind Farm in Texas
- Heidelberger DruckMaschinen CFO Kaliebe Leaves Company in Sept.
- Australian Mining Capex to Stall in 2019 on Trade War: S&P
- Burckhardt Full-Year Sales Beat Highest Estimate
- AstraZeneca to Invest $220M in Vietnam’s Health-Care Sector
- Greenyard’s Bakker Belgium in Value Chain Pact W/ Ahold Delhaize
- Red Electrica Names Roberto Garcia Merino as New CEO: Filing
NOTES FROM THE SELL SIDE:
- Citi upgrades Zurich Airport to neutral, with risk from ongoing regulatory review now seen as priced-in following the stock’s underperformance over the past 6 months.
- Rio Tinto’s earnings are being spurred by a deficit in the iron ore market that’ll last two years, Goldman says.
- CTS Eventim currently has no meaningful catalysts, Bankhaus Lampe says in note downgrading stock to hold from buy following a strong share price gain and “disappointing” 1Q numbers.
TECHNICAL OUTLOOK for Stoxx 600 index:
- Resistance at 383.4 (50-DMA); 385.7 (76.4% Fibo)
- Support at 374.5 (61.8% Fibo); 368.8 (200-DMA)
- RSI: 43.1
TECHNICAL OUTLOOK for Euro Stoxx 50 index:
- Resistance at 3,403 (61.8% Fibo); 3,413 (50-DMA)
- Support at 3,309 (50% Fibo); 3,271 (200-DMA)
- RSI: 44.7
MAIN RESEARCH AND RATING CHANGES:UPGRADES:
- Anglo American (LON:AAL) upgraded to buy at HSBC; PT 23.20 Pounds
- Antofagasta (LON:ANTO) upgraded to hold at HSBC; Price Target (NYSE:TGT) 8 Pounds
- KAZ Minerals upgraded to buy at HSBC; PT 6.90 Pounds
- Lloyds (LON:LLOY) upgraded to outperform at Davy
- Schweiter upgraded to buy at Baader Helvea; PT 1,210 Francs
- Thomas Cook upgraded to hold at Berenberg
- Zurich Airport upgraded to neutral at Citi
DOWNGRADES:
- CTS Eventim downgraded to hold at Bankhaus Lampe
- S Immo downgraded to accumulate at SRC Research; PT 22.50 Euros
- Wallenius Wilhelmsen cut to hold at DNB Markets; PT 32 Kroner
INITIATIONS:
- CYBG rated new neutral at Davy; PT 1.59 Pounds
MARKETS:
- MSCI Asia Pacific up 0.4%, Nikkei 225 up 0.4%
- S&P 500 up 0.1%, Dow up 0.4%, Nasdaq up 0.1%
- Euro down 0.08% at $1.1185
- Dollar Index up 0.17% at 97.78
- Yen down 0.04% at 109.55
- Brent up 0.2% at $70.3/bbl, WTI up 1.1% to $59.3/bbl
- LME 3m Copper up 0.8% at $6001/MT
- Gold spot down 0.4% at $1283.6/oz
- US 10Yr yield down 1bp at 2.31%
MAIN MACRO DATA (all times CET):
- 8am: (GE) April Import Price Index MoM, est. 0.5%, prior 0.0%
- 8am: (GE) April Import Price Index YoY, est. 1.6%, prior 1.7%
- 8am: (GE) June GfK Consumer Confidence, est. 10.4, prior 10.4
- 10am: (EC) April M3 Money Supply YoY, est. 4.4%, prior 4.5%
- 11am: (EC) May Economic Confidence, est. 104, prior 104
- 11am: (EC) May Business Climate Indicator, est. 0.4, prior 0.4
- 11am: (EC) May Services Confidence, est. 11, prior 11.5
- 11am: (EC) May Consumer Confidence, est. -6.5, prior -6.5
- 11am: (EC) May Industrial Confidence, est. -4.3, prior -4.1