The German multi-national bank, Deutsche Bank (DBK:DE), has been one of the most frequently mentioned players in financial news in the last 10 years, unfortunately often for the wrong reasons. DB’s troubles have included legal fines, tax evasion, and employee scandals in the FX and rates markets. This has weighed heavily on DB stock, falling from a peak of ~€85 in 2007 before the financial crisis, all the way down to a low of €5 during the fallout of the COVID first wave in early 2020.

The German multi-national bank, Deutsche Bank (DBK:DE), has been one of the most frequently mentioned players in financial news in the last 10 years, unfortunately often for the wrong reasons. DB’s troubles have included legal fines, tax evasion, and employee scandals in the FX and rates markets. This has weighed heavily on DB stock, falling from a peak of ~€85 in 2007 before the financial crisis, all the way down to a low of €5 during the fallout of the COVID first wave in early 2020.

Despite the history of negativity, the bank is now entering a new phase of changing fortunes, as the stock is now trading at ~€11, representing a return of over 100% in the last 15 months. Here is why I believe the positive momentum will continue. 

Tough strategic decisions and new management

Under CEO Christian Sewing, the bank has undergone a period of regulatory clean-up and cultural change, downsizing unprofitable parts of the business, and restructuring thousands of jobs. A key strategy shift has been to redirect the resources and ambitions of the bank to move away from the capital intensive, overly competitive landscape, and volatile earnings nature of Investment Banking. DB is now pursuing a new focus on their Wealth Management and Corporate Banking businesses, banking on the prospect of longer-term and more stable relationships (and in turn income) from high-net-worth individuals and corporate clients. 

Return to profitability

The painful executive decisions are starting to payoff in the recent financial results. DB smashed earnings estimates for the second quarter in row, reporting its best run of profits in nearly a decade.
H1 2021 revenues grew to €13.5B, up from €12.6B in H1 2020, at the same time as significant decreases in both costs and provisions for credit losses. Confidence is growing, as investment analysts and the wider market are noticing the positive numbers and sentiment around DB’s turnaround plan.

Credit rating upgrade

Last week DB had its credit rating upgraded and a positive outlook assigned by one the leading rating agencies, Moody’s. Rating agencies analyse the business and financial profile of a company to determine their creditworthiness and likelihood of default.
DB’s rating by Moody’s now sits at the highest rating level since 2014, thanks to the abovementioned revenue growth and cost efficiencies. This will likely be an additional boost to the stock price, as a higher credit rating will help DB to attract larger clients and investors, whilst also gaining access to cheaper funding in the credit markets to continue to deliver on their new business plan.

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