Deutsche Bank-Lehman Brothers comparisons continue this week as DB stock trades just above an all-time low. Chris Vermeulen with Seeking Alpha is the latest to make the Deutsche Bank-Lehman comparison; his analysis leads him to believe that DB stock is headed to “zero.”
The Inquisitr has previously reported on comments from CNBC’s Guy Adami with regard to DB stock, that it is trading “like it knows something the rest of the world either does not or chooses to ignore.”
Adami is referring to the nauseating loss of value in DB shares, which made a new low (below $14) post-Brexit, and currently trade just $0.05 above all-time lows printed on June 25. DB stock has followed a pattern of selling off on heavier volume and then rallying on lighter volume while making new lows overall. Deutsche Bank AG (NYSE: DB) has lost $5.4 billion in market capitalization post-Brexit.
Perhaps worse, as it is bigger, with a rapidly shrinking market capitalization of $24.5 billion, is Royal Bank of Scotland Group (NYSE: RBS), which has witnessed its stock lose 60.0 percent of its value over the past year and hit a new low today. Other shares in European banking and financial services companies have been similarly sold.
Over the past year, DB stock has lost 53.1 percent of its value. Just in the past month, DB stock is down 20.9 percent.
Deutsche Bank-Lehman comparisons first started being made in earnest, with Seeking Alpha offering its analysis during a February market swoon, when contingent convertible debt, and the Dow Jones Industrial Average (^DJI), briefly fell off a seeming cliff, as reported by the Inquisitr.
“The collapse of Lehman Brothers in 2008 threatened the world’s financial system and created one of the greatest financial crises in modern history,” writes Investopedia in a June 29 Deutsche Bank-Lehman comparison.
The article discusses the June 29 International Monetary Policy statement that “Deutsche Bank poses the greatest risk to the global financial system” of any financial institution.
Deutsche Bank is reported to hold “notional derivatives exposure” of $72.8 trillion, or about 13 percent of the $550 trillion worldwide total. Investopedia noted that $72.8 trillion is roughly 3,600 times the bank’s market cap; that figure has likely risen since.
Over the past 90 days, the Wall Street analyst consensus for 2016 Deutsche Bank earnings per share has fallen from $1.31 to $0.71, or 45.8 percent. 2017 views have fallen from $2.17 to $1.90, or 12.4 percent.
Deutsche Bank reports a profit margin of -23.6 percent, an operating margin of 12.4 percent, and a return on equity of -9.82 percent. The bank held $1.07 trillion in cash at the end of the first quarter and owed $903.0 billion in debt. Zacks reports that Deutsche Bank carries a debt to equity ratio of 231 percent. Zacks also rates Deutsche Bank as a “strong sell.”
Two other firms offer recommendations on DB stock, with both being “hold.” The average price target for DB stock is $14.45.
Continuing with the Deutsche Bank-Lehman comparison, Vermeulen wrote that prior to its collapse, Lehman Brothers was employing leverage of 31 to 1. Deutsche Bank, he writes, is using 40 to 1.
Is Deutsche Bank the next Lehman Brothers? Financially, Deutsche Bank is not even in the same ballpark as JPMorgan Chase & Co (NYSE: JPM), the stock of which is trading sub-$60 today; at the most basic level, one has earnings and the other does not. However, DB stock, one would think, as the premier German bank, should be comparable to JPM.
“So not only did he go easy with zero percent, he decided to print four, five trillion dollars of money, which is just asinine, which led to all these other central banks printing money,” money manager Gary Kaltbaum was quoted by Brietbart with regard to the moves of former Federal Reserve Chairman Ben Bernanke and other central bank leaders.
It may be that action on the part of the European Central Bank and the Board of Federal Reserve Governors may be the only thing that can save a Deutsche Bank-Lehman-type scenario from unfolding. It is widely understood that the Federal Reserve was instrumental in JPMorgan being able to acquire Bear Stearns for a “fraction” of its value, as reported by Investopedia. Could it be that a buyer for the most prestigious bank in Germany will emerge if DB stock slides low enough?
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