Bearish Deutsche Bank Analyst Says There's No Easy Path Forward

Rumors of a potential merger between Deutsche Bank AG DB and Commerzbank have picked up steam.

With or without Commerzbank, one analyst said Thursday that investors should steer clear of Deutsche Bank.

The Analyst

Bank of America Merrill Lynch analyst Andrew Stimpson reiterated an Underperform rating on Deutsche Bank with a $7.33 price target.

The Thesis

A merger deal with Commerzbank would certainly be difficult, but not impossible, Stimpson said in a Thursday note. If a deal is not reached, the outlook for Deutsche Bank in the near-term is not optimistic, he said. 

“No deal would refocus attention on what looks likely to be a weak 1Q19, missing 2019 targets and a CET1/RWA ratio that is likely to move backwards in 1H19, sitting only slightly above the 13% level and close to its (admittedly high) minimums." 

If Deutsche can’t close the deal with Commerzbank, the analyst said they will be pressured to present investors with a new plan — and one potential direction for the company would be to decrease the size of its investment banking business.

Deutsche Bank’s investment banking business dominates its equity allocation, but generates a disproportionately small percentage of the company’s profits, Stimpson said.

While Deutsche Bank works on a potential merger deal and/or contingency plan, the stock is trading at an elevated valuation, in BofA's view.

With no easy path forward for the struggling bank, investors should keep their distance, the analyst said. 

Price Action

Deutsche Bank shares were trading up by 2.38 percent at $8.40 at the time of publication Thursday. 

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