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“The investment bank is stagnating while the company’s other units are growing,” says an analyst with Bankhaus Metzler who rates the stock a Sell. “Scaling back the investment bank is an option, but you have to ask how they’re going to replace that earnings power.”
- As recently as Q3 of last year, the unit accounted for the largest share of Deutsche Bank's (DB -2.5%) earnings, but it's set to generate the least profit of any of the lender's four units in Q4. While Co-CEO Anshu Jain pledged to build the investment bank, he and his co-chief Juergen Fitschen may have no choice but to scale back even further when Deutsche updates on its strategic plan in Q2.
- There's plenty of upside if they get it right: Deutsche trades for just 0.6x tangible book value, the lowest of the top nine global investment banks.
- 'Investors have a lot of trouble believing that Deutsche Bank’s balance sheet is really going to be worth what they say it is,” says another analyst. “Even if fixed-income markets were to rebound, they’d still be short on capital and unable to reap the benefits.”