Deutsche Bank stock has been on the radar of CNBC Fast Money founding member and commentator, Guy Adami, who described it in a tweet today as trading “like it knows something the rest of the world either does not or chooses to ignore.”
Almost 12 million shares, more than twice the daily average, in the premier German bank sank 2.56 percent today and hover just above a 30-year low. While most of the stock market sold-off heavily after being taken by surprise by a vote for a brexit in the EU referendum held last Thursday, June 23, shares issued by profitable financial services companies, such as JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (NYSE: MS) have each recovered some, if not all, of the value lost. Deutsche Bank (NYSE: DB) stock and that of The Royal Bank of Scotland Group (NYSE: RBS) are examples of European banking shares that have been much weaker, both trading at, or near, fresh lows.
A method employed by several market observers, and thoroughly discussed by MarketWatch contributor, Kevin Marder, is the so-called tennis balls and eggs test. After a swoon like the one witnessed post-brexit, students of the tennis balls and eggs concept observe which stocks rebound with vigor, tennis balls, when the general market, as it always seems to, does and which remain at lows, the eggs. The school of thought goes that the first stocks to print new price highs in the wake of a general market sell-off go on to gain the most in a subsequent bull market rally.
Deutsche Bank stock and the stock of The Royal Bank of Scotland, among several others, could easily be seen as trading as eggs. Shares in JPMorgan and Morgan Stanley might be seen as tennis balls. There are others.
Yesterday, Investopedia published a report asking “Does Deutsche Bank Have Similarities to Lehman?” The investing publication described the Deutsche Bank balance sheet as being a sign of “excessive risk-taking.”
Investopedia reports that the total “notional value” of derivatives contracts worldwide in 2015 was $550 trillion. Deutsche Bank is said to have a what seem to be a stunning level of exposure.
“… exposure of $72.8 trillion, or about 13% of the total global amount. As of June 15, 2016, the total derivatives exposure equates to about 3,600 times the bank’s market cap of $20.26 billion.”
Deutsche Bank stock is has lost over 52 percent of its value over the past 12 months. Deutsche Bank has trailing twelve month per share losses of $5.91. Wall Street analyst consensus EPS estimates for 2016 and 2017 have been taken down over the past 90 days, from $1.37 to $0.79 and $2.21 to $1.92, respectively, as reported by Yahoo Finance. If met, these views would represent year over year growth of -78.9 percent for 2016 and 143.0 percent in 2017. Current trading in DB stock might be seen as indicating that further revisions to EPS estimates are likely.
On top of owning 13 percent of the world’s derivatives, Deutsche Bank owes a total of $920.9 billion in debt, giving it a debt to equity ratio of a somewhat astounding 231 percent, as reported by Zacks.
In the month of June, Deutsche Bank stock has been downgraded from “overweight” to “neutral” by JPMorgan and from “outperform” to “sector perform” at RBC Capital Markets, as reported by Yahoo Finance.
As well as appearing on Fast Money, as one of its original members, Guy Adami is reported to serve as a director and chief market strategist at Private Advisor Group, which is reported to manage $16 billion in assets through a network of over 500 investment advisors. He has also worked as a gold trader with Goldman Sachs, and other firms, and with Goldman’s “Fixed Income Currency and Commodity division,” as reported by CNBC.
[Diane Bondareff/AP Images for The Leukemia & Lymphoma Society]