Deutsche bank Q4 loss narrows, misses estimates

Anticipation of an improved fiscal 2016 fourth-quarter performance drove the share price of Deutsche Bank AG (NYSE: DB) to a 12-month high of $20.94 on January 25th . However, the bank failed to meet the expectations of investors by posting a loss in the fourth quarter of fiscal 2016. Even though the overall performance of the bank was far better than the previous fiscal year, still, we anticipate further declines in the share price because of the reasons provided underneath.

The German lender reported fiscal 2016 fourth-quarter revenues of Euro 7.07 billion, up from Euro 6.642 billion in the fourth-quarter of 2015. For 4Q16, Deutsche bank posted a narrowed net loss of Euro 1.90 billion, from a net loss of Euro 2.13 billion in Q4-2015.

The reported loss was wider than the net loss of Euro 1.32 billion anticipated by analysts. Deutsche bank attributed the loss to litigation charges of EUR 1.6 billion and impairment charges of EUR 1.0 billion.

Reuters

At the end of fiscal 2016 fourth-quarter, the Common Equity Tier 1 (CET 1) ratio increased to 11.9%, from 11.1% in the corresponding quarter of 2015. Similarly, the Q4 risk-weighted assets declined to EURO 358 billion, from EURO 397 billion last year. Deutsche bank’s trading unit posted a quarterly pretax loss of Euro 737 million, compared with a loss of Euro 954 million last year. Debt trading revenue increased 11% to Euro 1.38 billion, but fell short of analysts’ estimates of Euro 1.68 billion. Even equity trading revenue declined 23% to Euro 428 million. Analysts expected the bank to report flat equity trading revenue.

It can be remembered that in December 2016 Deutsche bank agreed to pay $7.2 billion as penalty to the US Department of Justice to settle charges related to unethical sale of mortgage-backed securities, which was primarily responsible for 2008-2009 global economic crisis. Last week, the bank was fined $629 million by the UK and US authorities for assisting rich Russians to move $10 billion out of the country, without proper compliance. The US Department of Justice is currently conducting a criminal investigating of the trades. Deutsche bank is also yet to resolve an investigation related to the rigging of currency exchange rates and precious metals prices. Thus, based on the issues faced by the institution, we anticipate the stock to remain bearish.

Technically, the declining stochastic oscillator indicates that the stock is gradually losing momentum. The price chart also indicates a firm resistance at 20.50. On the downside, support exists at 18.50. So, considering the minimum resistance on the downside, we anticipate a decline in the stock price.

A put option would prove beneficial if the stock moves in line with the forecasted downtrend. The investment is advised as long as the stock trades above $19.30 (as shown in the broker’s platform) in the equity market. Furthermore, the expiry date of the contract should be preferably around February 15th.

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