Prompted by the U.S. Department of Justice demanded $14 billion to settle legal action over mortgage securities, market concern over Deutsche Bank’s capital and earnings has spilled over into rumors about a state-led rescue. The bank and the German government have issued several rounds of denials, the latest after Die Zeit claimed Sept. 28 that work was underway on a rescue plan that potentially includes fresh capital for the bank.
There is no doubt, however, that Deutsche Bank is struggling. Its results for the past several years show weakening equity, high leverage and a poor earnings record, and the gap between recent performance and the bank’s targets looks considerable.
Consensus estimates for full year 2017 suggest that Deutsche Bank’s common equity Tier 1 ratio will come close to its 2018 target thanks in part to a reduction in risk-weighted assets, but they foresee weak returns around 4% — and downgrades cannot be ruled out.
The bank’s shares have more than halved in value in 2016, and its market capitalization has fallen below €15 billion.
