DEUTSCHE RESULTS: A stay of execution, not a reprieve

mesnip18716The general surge in bond-trading revenue has come to Deutsche Bank’s short-term rescue, but the 14% rise was dwarfed by the 40% achieved by Barclays.  Everyone would do well to look again at what analysts were seeking in terms of reassurance yesterday.

“I am looking at three things in general, which are capital levels, overall progress on costs, and general execution on the core business,” said Stephen Ellis, director of financial services equity research at Morningstar. This was, in my estimation, a fairly typical opinion-leader view.

Anyone who has ever spent time involved in corporate financial accounting will testify to the ease with which obscure nomencalture, smoke, mirrors and downright misleading “income” levels can be used to advantage in order to explain any given quarter.

Other factors can’t be ignored: the bank is hastily selling its Mexico banking subsidiaries to Investabank and Institucion de Banca Multiple, while latin america dental has dumped DB as its APR1 partner. Across the world, Deutsche’s business partners are nervous.

To be fair to John Cryan, he has tried to control expectations, warning that the situation “will stay difficult for a while” and that DB must “brace itself” in readiness for the final DoJ fine demand. But ultimately, the doubts remain exactly the same: captilisation, controlling costs, and strategy in relation to core business.

Liquidity reserves are a worry to me. In June, they stood at $223 billion. In September, Cryan said they would steady at $215 billion. Today, the number is $200 billion.

Costs continue to be a concern to core investors. One such – unnamed – called on the bank’s management to make deeper cuts in its trading activities. “Fixed income is still oversized in terms of cost and on group level there are still 10,000 staff too many.”

But clarity of strategy is what I think lies at the centre of this affair. There is what the Americans would like Deutsche to do from the US geopolitical perspective; there is the Bundestag view that the Bank has grown too big for its boots; and there are the Arab investors waiting to get a result on the DoJ fine…but more to the point, wanting a clear steer from Cryan about where the future high margin income is going to come from.

I still doubt that Justice will give a final fine decision before Election Day. Deutsche management, potential investors, shareholders and Donald Trump will have to wait and see.

Connected from earlier this week at The Slog: Deutsche, Donald and the DoJ