Despite Investors' Fears, Analysts Say Deutsche Bank Is No Credit Suisse

Investors became anxious on Friday, as Deutsche Bank AG's DB shares fell by as much as 14% following a string of bank failures and bailouts worldwide. 

According to Reuters, Deutsche Bank fell 11.6% in Frankfurt trading while its U.S.-listed shares fell 6%. The drops followed a spike in the price of the lender's credit default swaps that had reached a four-year high on Thursday. 

The bank, however, remains in good shape, according to German Chancellor Olaf Scholz, who, at a new conference in Brussels on Friday, added that Deutsche Bank had "thoroughly reorganized and modernized its business model" and was "very profitable."

In recent years, the bank has undergone a multibillion-euro restructure and improved its profitability. According to a CNBC report, the bank recorded an annual net income of $5.4 billion in 2022, up 159% from the previous year.   

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While investors remain worried about the bank's U.S. commercial real estate exposures and substantial derivatives book, research firm Autonomous, a subsidiary of AllianceBernstein, dismissed those concerns, pointing to the bank's "robust capital and liquidity positions."

"Our 'Underperform' rating on the stock is simply driven by our view that there are more attractive equity stories elsewhere in the sector (i.e. relative value)," CNBC quoted autonomous strategists Stuart Graham and Leona Li.

"We have no concerns about Deutsche's viability or asset marks. To be crystal clear — Deutsche is NOT the next Credit Suisse," the analysts said. 

Graham and Li added that Deutsche Bank is "solidly profitable" and that they forecast a return on the tangible book value of 7.1% for 2023 and 8.5% by 2025.

In a note on Friday, JPMorgan strategists wrote that the German bank had its share of "headline pressure and governance fumbles." 

"In our view, the bank had a far lower quality franchise to begin with, which while significantly less levered today, still commands a relatively elevated cost base and has relied on its FICC (fixed income, currencies, and commodities) trading franchise for organic capital generation and credit re-rating," the strategists wrote. 

"Where Deutsche's governance fumbles could not incrementally 'cost' the bank anything in franchise loss, Credit Suisse's were immediately punished with investor outflows in the Wealth Management division, causing what should have been seen as the bank's 'crown jewel' to themselves deepen the bank's P&L losses," they added.

Earlier this month, Credit Suisse Group AG CS, caught up in the panic that followed Silicon Valley Bank's demise, was taken over by UBS Group AG UBS in a hurriedly arranged deal.

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