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Following stratospheric Q1 performance on the investment banking side, DB fell back to earth in Q2 and landed among its competitors. The €1.2 billion net profit is in line with the optimistic expectations which emerged in the previous quarter. However, the sequential decline of BFI activities is paving the way for the expected recovery in Q3 of all the transactions which remained in the pipeline during the recent bear markets. The 35% discount on the share price is highly exaggerated, even if the shareholders’ equity would benefit from organic strengthening.
Q1 got off to a strong start at Deutsche Bank, with a net result 40% above expectations. We were expecting an investment bank in robust health and that has indeed proved to be the case. This excellent performance is welcome because it makes the ambitious target of a €10 billion pre-tax profit by 2011 credible. With the cash acquisition of Sal. Oppenheim (although it could have exchanged shares), the management has also shown that it is comfortable with the present shareholders’ equity level.
We are introducing Deutsche Bank with a PLUS code. This is one of the few investment banks to have emerged strengthened from the crisis without resorting to public aid. It is therefore ideally positioned to benefit from the recent rebound of activity in this area. In parallel, even though the regulatory risk still hovers over the investment banking industry, this has been more than fully discounted in the share price which is trading at a 25-30% discount to its peer group.
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