Deutsche Bank AG (ISIN: DE0005140008) made it through the Banking Sector Crisis unscathed after reporting its eleventh consecutive quarterly profit. As the Banking Sector Crisis unfolded, some banks fell like dominoes, but Germany’s biggest bank held its head high. 

The bank’s top and bottom lines were up, with the quarterly revenues at their highest since 2016, despite the bank exiting certain businesses in its transformation process. Deutsche Bank commenced a sweeping restructuring process in 2019 aimed at cutting costs and enhancing profitability.  

Given the European Central Bank’s tightening cycle, interest rates surged rapidly in the past year and will likely move higher as the central bank continues to fight off sticky inflation. Deutsche Bank, among other interest-earning businesses, benefitted with bolstered Net interest income flowing through its financial statements. The bank’s head believes it is on track to meet or exceed its targets set for 2025. Will Deutsche Bank’s share price reflect the upbeat quarter?  

Technical 

Deutsche Bank’s share price escaped a downtrend after exiting the descending channel pattern, which it was stuck in for over a year. A break above the 100-day moving average set it up to form a new year-to-date high at the $13.35 per share level, subsequently forming the resistance level. After rejecting the resistance level, bearish investors swept into the stock and the broader banking sector with a selloff leading to a sharp 23.58% plunge in the bank’s share price since. A reversal from the $8.85 per share level, which coincides with the 61.80% Fibonacci Retracement Golden Ratio, established support, once the dust settled within the banking sector.  

Given that the sector is somewhat in the clear, there could be more room for upside potential. Bullish investors will likely be in contention to buy into the stock with the $13.35 per share level earmarked as a point of interest. If bullish volumes substantiate, a breakout above the 100-day moving average could validate the move higher towards resistance.  

Alternatively, the $8.85 per share level could provide attractive long opportunities for bullish investors if the share price moves south. A reversal from the support level could be validated by dwindling volumes to the downside as the price approaches the support level.  

Fundamental 

Net revenues were aligned with the bank’s growth objectives through 2025 after growing 5% to €7.7B from the quarter a year ago. Boosting the top line was a 19% surge in the Net interest income year-on-year to €3.4B. However, offsetting the top line’s upbeat performance was a 4% decline in non-interest income, with the main culprit the Commissions and Fee Income which was down 15% from the quarter a year ago. Only the Corporate bank and Private Banking segment revenues contributed to the northward performance in total revenues, after growing 35% and 10% year-on-year, respectively.  

Profit before tax was boosted by the positive top-line performance with a gain of 12% year-on-year to €1.9B, the highest quarter since 2013. The cost-to-income ratio was improved with a 200 basis point decline from 73% a prior-year quarter.  

From a liquidity perspective, the Common Equity Tier 1 (CET1) capital ratio rose to 13.6%, up from 13.4% in the previous quarter, indicating the bank’s slightly improved capability to absorb expected or unexpected losses. However, the 13.6% CET1 still falls short of the 15.27% aggregate for the Euro Area banking sector from the final quarter of 2022. 

After discounting for future cash flows, Deutsche Bank’s fair value came in at €11.22 (USD12.04) per share. This could leave room for a 16% upside gain if the stock aligns with its fair value.  

Deutsche Bank’s share price has exhibited a negative correlation with the broader DAX40 companies on a year-to-date basis. The stock has plummeted 7.19%, while the DAX40 has moved in the opposite direction, gaining 13.43% in the process. Given that the U.S. banking sector crisis was contagious, European bank’s share prices were also left reeling, justifying the gap in the performance.  

Deutsche Bank’s net income margin remains in the top tier of its competitors and in line with banks across the Atlantic in the U.S. However, the net income margin has been relatively volatile over ten years, compared to its competitors, with a downward move in 2016 and 2019, the most significant plunges, adding to its risk profile. 

Summary 

Deutsche Bank is firmly committed to improving its business practices and processes to enhance operational and capital efficiencies to drive up revenues and returns. With another 800 jobs set to be cut from the workforce, a potential €500M could be saved over the next few years. If Deutsche Bank succeeds in its plans, the bottom line could be bolstered to lure more investors into buying the stock. The $12.04 per share level could materialise as a result, for as long as no force majeure events, such as the Banking Sector Crisis, stir up a selloff.  

Sources: Deutsche Bank AG, European Central Bank, Reuters, CNBC, Corporate Finance Institute, TradingView, Koyfin