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Too little, too late for Deutsche Bank?

Amid falling financials, soaring litigation costs and unconvinced investors, Deutsche Bank has installed a new man at the top. But will it be enough to turn the German giant around?

Deutsche Bank
Source: Bloomberg

Sunday saw Europe’s biggest bank announce the replacement of its co-CEO’s with Anshu Jain’s resignation, effective at the end of the month, to be replaced by former UBS executive John Cryan. Deutsche Bank investors certainly took the news well, with shares gaining over 7% at the market open. With Mr Jain having driven the firm towards becoming the investment banking powerhouse it currently is, does this news represent a likely move away from the riskier end of the business? If so, what would that mean for investors?

Located at 60 Wall Street, Deutsche Bank currently holds the largest office on Wall Street of any bank, and this speaks volumes as to the kind of firm that Deutsche was trying to become; global and dominant, not only in Germany but worldwide. However, there is a realisation that the firm may have become too big and too complex, leading to April’s announcement that the firm is due to shift its focus away from the investment banking business.

Unfortunately, the firm which represents the largest non-US based investment bank did not weather that news well, with the share price falling ever since, despite a strong Q1. The 27 days following this announcement saw 22% wiped off the value of the firm.

With the move away from the investment bankers of old, represented by Anshu Jain, towards leadership from someone who has very little experience in the field, it seems that Deutsche is following a route trodden by Barclays with its appointment of the retail-focused Anthony Jenkins to replace the perceived ‘fat cat’ Bob Diamond. It’s the age old question of stability versus risk, which in the mind of investors translates to low profits versus high profits (with the chance of a bad year here and there).

Unfortunately for the firm, its financials have been moving in the wrong direction, with quarterly profits and income falling in the face of litigation costs associated with the $2.5 billion fine for fixing interbank rates such as Libor and Euribor.

Thus while we may have seen a change of guard today, the problems seem to be deep rooted for the firm and a move away from the investment banking business would only be sensible if the rest of the business is sufficiently strong. That could take some time. However, the interesting part is whether investors will see today’s announcement as sufficiently momentous to bring back the positivity seen in the early part of the year which saw the share price gain 30% in Q1.

Deutsche Bank chart

The share price opened at €29.34 today, crucially below the €29.75 swing high from 4 and 21 May. With price having pulled back, the positivity has waned somewhat and there is a possibility that we could see a move back towards the €28.39 high from last week as new support.

Today’s move also sees us break out of the symmetrical triangle that has been in play throughout the past three months. With this in mind, there is a possibility we may move towards €29.75 in the near future. However, unless we move above this level, I believe there is likely to be another move lower, towards €28.39 and €28. Ultimately, the move above €28.39 is a bullish one, along with the breakout from the triangle.

With the pullback seen throughout the past three months bouncing from the 61.8% retracement, I do expect so see some strength coming back into the share price in the medium-term.

Any such move higher is likely to be a gradual one despite today’s price action and a move to €30 would be the key moment that I am convinced of a bullish trajectory. Ultimately, until any further news comes out regarding the direction of the firm, investors will likely give it the benefit of the doubt and as such I think we will see a move to €30 at some point in the coming months. However, the fact is that any such grace period would only last so long and John Cryan will have his hands full as he attempts to turn the company around.

Denne informasjonen er utarbeidet av IG, forretningsnavnet til IG Markets Limited. I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Denne informasjonen er ikke utarbeidet i samsvar med regelverket for investeringsanalyser, så derfor er denne informasjonen ansett å være markedsføringsmateriale. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder. Se fullstendig disclaimer og kvartalsvis oppsummering.

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Denne informasjonen er utarbeidet av IG, forretningsnavnet til IG Markets Limited. I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Det er ikke utarbeidet i samsvar med lovens krav for å fremme uavhengighet av investeringsanalyse og som sådan er ansett av å være markedsføringskommunikasjon. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder.