Deutsche Bank AG (NYSE: DB) stock is once again trading toward all-time lows following the German bank’s second quarter earnings announcement and reports from German media outlet, Deutsche Welle, that a Deutsche Bank Lehman-style collapse is “unlikely.”
Since the June 23 E.U. Referendum voted for a “Brexit,” stock in Deutsche Bank is down by 25.9 percent. Just since yesterday’s financial results, DB stock is down by 6.8 percent, despite the fact that the company met reduced Wall Street analysts’ earnings per share expectations of $0.45, as reported by Yahoo Finance.
Conversely, since the Brexit vote, shares in JPMorgan Chase & Co. (NYSE: JPM) are flat, down less than one percent, though JPM stock did briefly sell off following the U.K. vote to leave the European Union, shares quickly rebounded. The tennis balls and eggs nature of trading in JPM and DB stock has been previously discussed by the Inquisitr.
Also conversely to both DB and JPM stock, are shares in growth names like Facebook, Inc. (NASDAQ: FB) and NVIDIA (NASDAQ: NVDA). Since the Brexit vote, FB stock is up by 8.8 percent and NVDA stock is up by 16.0 percent, both near all-time highs. Over the same period, the Dow Jones Industrial Average (^DJI), a measure of the broad market, has gained 2.2 percent and also sits near all-time highs.The Philadelphia Semiconductor Index (^SOX), of which NVDA shares are a component, has gained 7.4 percent.
Over the past 90 days, the full-year 2016 DB earnings per share consensus among Wall Street analysts, as reported by Yahoo Finance, has been cut from $1.22 to $0.63, or 48.4 percent; the analysts’ 2017 EPS consensus is $1.94, down from $2.15, or 9.8 percent, 90 days ago.
Despite the fact that several observers have been making Deutsche Bank-Lehman Brothers comparisons, since a February sell-off in European contingent convertible debt, as previously reported by the Inquisitr, German broadcaster Deutsche Welle has reported on the comments of Atlantic Equities analyst Christopher Wheeler, who believes that the German government, and perhaps the European Union, would step in before a Deutsche Bank collapse became imminent.
“Wheeler is certain that the bank will be able to come out of its predicament on its own steam, or in a pinch, get a fresh cash infusion from capital markets. But when push comes to shove, Deutsche Bank is unlikely to fail. ‘It’s all in the name: Deutsche Bank,’ said Wheeler. ‘Germany would do everything to help its bank solve its problems.'”
CNBC reported in mid-July that Deutsche Bank credit default swaps had jumped from 95 to 230 basis points since the beginning of 2016 and that the premier German bank’s derivatives exposure, estimated to be $75 trillion, is about “20 times greater” than German GDP.
The financial network has also reported on a seemingly huge bet that DB stock will trade below $11 before the third Friday in August made in early July. The trade that CNBC reported on was the purchase of 9,000 $12 August put options at $1, or $900,000 in total.
Put option contracts give the holder the right, but not the obligation, to sell 100 shares of a stock, in this case DB, at a given price, in this case $12, for a given period of time, in this case until August 19. Because the buyer of this contract paid $1.00, the stock would need to trade below $11 ($12-$1) for the intrinsic value of the contracts to rise beyond what was paid and the trade to become profitable.
If the buyer of the DB stock put options is wrong, and the shares stay above $12, they will lose their entire $900,000 investment if they hold until expiration. If the stock is between $11 and $12 at expiration, the contracts will have an intrinsic value between $0.01 and $0.99, and the buyer of the put options will get some percentage of their investment back.
The all-time low for DB stock is $12.50, printed on July 7. Shares currently trade at $13.28, or 6.2 percent above that level. JPMorgan lowered its rating on DB stock from “overweight” to “neutral” on June 27. Only one broker is publishing a price estimate reported by Yahoo Finance for DB stock, currently $14.39.
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