Deutsche Bank's Deposit Base Aids, Low Credit Quality Ails

Deutsche Bank AG DB benefits from a strong balance sheet position and revenue growth. Its strong liquidity profile aids sustainable capital distribution activities. However, a rise in expenses and a deterioration in credit quality are concerning.

Deutsche Bank continues to benefit from its deposit balance. The metric has witnessed a 2% CAGR over the last five years (ending in 2023) and the trend continued in the first quarter of 2024. Furthermore, the bank benefits from a diverse deposit base that spans multiple client categories and geographic regions. Also, as of Mar 31, 2024, the company's loan-to-deposit ratio was 75.7%, indicating a robust and steady capital foundation. We believe that a stable deposit level will benefit its balance sheet.

DB remains focused on strengthening its capital position. As of Mar 31, 2024, the Common Equity Tier 1 (CET 1) ratio was 13.4%. Risk-weighted asset (RWA) reductions and strong organic capital generation enabled the bank to see improvement in the CET1 ratio. As of Mar 31, 2024, €15 billion of RWA reductions have been achieved, out of the target to reach €25-30 billion in reductions by 2025-end. It expects to maintain a CET 1 ratio of approximately 13% by 2025.

Net revenues recorded a CAGR of 2.7% over the last five years (ended 2023), with this upswing persisting in the first quarter of 2024. Management is shifting focus from investment banking to more stable and capital-light businesses, like private bank, corporate bank and asset management units.

Shares of this Zacks Rank #3 (Hold) company have gained 20% on the NYSE over the past three months compared with the industry's growth of 10.8%.

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The bank has seen a deterioration in its credit quality. Its provision for credit losses witnessed a CAGR of 23.4% over the last five years (ended 2023), with the rising trend continuing in the first quarter of 2024. The current volatile economic backdrop is expected to affect credit quality in the near term. We project provisions to be €1.67 billion and €3.91 billion in 2024 and 2025, respectively.

Due to the nature of its business, Deutsche Bank is involved in litigation, arbitration and regulatory processes in Germany as well as a number of other jurisdictions. The bank has already incurred considerable legal settlement fees, which have had a negative impact on its finances.

Bank Stocks Worth Considering

Some better-ranked foreign bank stocks are Banco Macro S.A. BMA and Bancolombia S.A. CIB.

The consensus estimate for Banco Macro's current-year earnings has been revised 29.6% upward over the past 30 days. Over the past three months, shares of BMA have surged 69.9%. The stock currently sports a Zacks Rank #1 (Strong Buy).

Bancolombia S.A.'s current-year earnings have been revised almost 1% upward over the past 30 days. Shares of CIB have gained 11.6% over the past three months. The stock currently carries a Zacks Rank #2 (Buy).

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