Investors should short Deutsche Bank AG stock because of probes into currency manipulation and as a rally in banking shares reverses, Berenberg Bank said.
Deutsche Bank is “more than fully valued” after its shares outperformed peers, Berenberg analysts including Andrew Lowe, Nick Anderson and James Chappell wrote in an e-mailed report from London today.
“The investigations by regulators into the bank’s foreign exchange trading remain a significant risk considering Deutsche is the world’s largest foreign-exchange dealer,” they said.
At least a dozen firms have been contacted by authorities and more than 13 traders have been suspended, fired or put on leave during investigations into rigging the $5.3 trillion-a-day currency currency market. Possible manipulation of currencies and precious metals prices is worse than the Libor-rigging scandal, Germany’s chief financial regulator Elke Koenig said yesterday. Banks have already been fined about $6 billion for manipulating Libor, or benchmark lending rates.
Deutsche Bank, which is Europe’s biggest investment bank by revenue, dropped 0.5 percent to 39.39 euros at 10:57 a.m. in Frankfurt, trimming this year’s gains to 14 percent. The Bloomberg Europe Banks & Financial Services Index increased 6.5 percent since Dec. 31. Twenty-five of 43 analysts recommend buying Deutsche Bank, according to data compiled by Bloomberg.
Regulators are examining how currency traders, who communicated in instant-message groups, exchanged information on client orders and agreed how to trade at the time of the fix, five people with knowledge of the probes said last month.
Deutsche Bank, among six firms fined a record 1.7 billion euros ($2.3 billion) in December for manipulating Libor, suspended several foreign exchange traders for suspected attempts to rig prices, two people familiar with the matter said this week. The bank says it is cooperating fully with investigations.
Shareholders should “sell the January bounce” in European banking stocks and also short shares of Banco Santander SA, Spain’s biggest lender, ahead of the European Central Bank’s review of bank balance sheets this year, the analysts wrote.
Short sellers seek to profit by borrowing stock before repurchasing the shares later at a potentially lower price and returning them to the holder. Long positions are taken in anticipation of rising prices.
Investors should go long on Nordea Bank AB, the Nordic region’s biggest lender, because the share could rise about 10 percent in a “blue sky scenario,” Berenberg said. Nordea will probably commit “to a material rise in payout ratio as management fully adopts a utility banking model” when it reports fourth-quarter earnings in Stockholm on Jan. 29, the analysts wrote.
Deutsche Bank reports its earnings the same day.