Deutsche Bank (DB) is a leading global investment bank headquartered in Frankfurt, Germany. The bank offers financial products and services for corporates, government, financial institutions, private and business clients globally. It competes with other global investment banks like Credit Suisse (CS), UBS (UBS), JP Morgan (JPM), Morgan Stanley (MS) and Goldman Sachs (GS).
Global Transaction Banking is the most important driver of the bank’s value by our estimates. We estimate that Global Transaction Banking constitutes around 36% of our $54.80 price estimate for Deutsche Bank’s stock.
Global Transaction Banking (GTB) delivers commercial banking products and services for corporate clients and financial institutions, including domestic and cross-border payments, professional risk mitigation and financing for international trade as well as the provision of trust, agency, depositary, custody and related services.
Deutsche Bank earns fees for providing transaction services to its corporate clients and other financial institutions. Global Transaction Fees represents the fees earned by Deutsche Bank net of interest expenses, expressed as a percentage of total financial assets in the Global Transaction Banking division.
Global Transaction Fees declined from 11% in 2005 to around 6% in 2009 driven by a rapidly increasing asset base in contrast to a low interest rate environment, depressed asset valuation in the midst of global financial crisis, lower depository receipts and customer activity. We forecast Global Transaction Fees to increase modestly in 2010 in line with guidance and remain constant in the long term.
We expect increased global penetration and improved product capabilities will drive growth. Deutsche Bank acquired parts of ABN AMRO corporate and commercial banking activities in the Netherlands and the third party agency securities lending business of Dresdner Bank AG from Commerzbank AG. Also, Deutsche Bank has been continuously investing its resources in technologies that will improve the way payments are processed. Such platforms include the Single Euro Payment Areas and FX4Cash which provides cross currency payment solutions.
With Global Transaction Banking benefiting from strong fee growth in Trust & Securities Services, primarily in the custody business, and also in Trade Finance, where it is capitalizing on the continued demand for international trade products and financing, there can be an upside to our current forecasts.
If the Global Transaction Fees increases to around 12% by the end of our forecast period, it would mean around 5% upside to our current price estimate for Deutsche Bank’s stock.
Disclosure: No position