Investors should buy Deutsche Bank AG and Credit Suisse Group AG shares as they will generate more income from debt trading than some analysts predict, according to Jefferies Group LLC.
The banks will probably both see underlying revenue from trading fixed income, currencies and commodities rise 6 percent this year, Jefferies analysts including Omar Fall wrote in a report today. For 2015, Deutsche Bank may see a 7 percent increase, and Credit Suisse 8 percent, according to the London-based analysts.
The rising revenue will help push earnings per share 16 percent higher than external projections next year at Frankfurt-based Deutsche Bank and 11 percent higher at Credit Suisse, based in Zurich, the analysts estimated.
Deutsche Bank rose 0.9 percent to 36.03 euros ($49.43) by 10:41 a.m. in Frankfurt trading, leaving it down 0.3 percent in the past 12 months. Credit Suisse was unchanged at 28.30 Swiss francs ($31.76), and is up 8.4 percent in the past year.
Investment banks are selling assets, firing staff and exiting some markets to lift profit and capital levels to meet stricter regulatory requirements and boost shareholder returns. The efforts to shrink, coupled with slower economic growth, reduced revenue from debt trading last year, Anshu Jain, Deutsche Bank’s co-chief executive officer, said last month.
Jefferies, an investment bank owned by Leucadia National Corp., also initiated coverage of UBS AG with a “hold” rating, according to the report. The analysts said they see “little value” as the Zurich-based company won’t benefit as much as competitors from a recovery in the investment banking industry and the share price reflects the planned return of funds to investors.
Deutsche Bank was Europe’s largest investment bank by revenue last year, data compiled by Bloomberg Industries show. Credit Suisse was in third place after London-based Barclays Plc. Trading debt and related products for investors is a mainstay of their revenue.