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UBS Joins JPMorgan in Lowering Deutsche Bank on Capital

A Tram Passes a Deutsche Bank Logo in Berlin
JPMorgan cut Deutsche Bank to neutral from overweight on April 3. Photographer: Krisztian Bocsi/Bloomberg

April 22 (Bloomberg) -- UBS AG joined JPMorgan Chase & Co. in recommending investors stop buying shares in Deutsche Bank AG, saying the company may delay efforts to cut costs and build capital.

UBS cut Deutsche Bank to neutral from buy and lowered its price estimate for Deutsche Bank’s shares to 33 euros from 47 euros, analysts including Daniele Brupbacher and Mate Nemes in Zurich said in an e-mailed report today.

Deutsche Bank is contending with a global slowdown in trading revenue as clients hold off investing amid uncertainty over monetary policy and geopolitical crises. The company is among banks that have shrunk assets to allay investor concern about capital levels and to meet stricter regulatory requirements.

“The weaker than expected year-to-date revenue environment is particularly relevant for Deutsche Bank,” UBS said. “In order to protect the bottom line, Deutsche could push out the non-core clean-up as well as restructuring by about one year.”

Christian Streckert, a spokesman for Frankfurt-based Deutsche Bank, declined to comment on the UBS report by telephone today.

The stock rose 0.3 percent to 31.98 euros at 11:41 a.m. in Frankfurt. Before the UBS downgrade, twenty-one of 45 analysts recommended buying Deutsche Bank’s shares with 17 saying hold and seven saying sell, according to Bloomberg data. The average price estimate was 41.3 euros.

JPMorgan cut Deutsche Bank to neutral from overweight on April 3. A likely fall in the bank’s common equity Tier 1 ratio, a key measure of financial strength, due to trading book revaluation will be significant due to its “tight capital position” and market concern over capital risk, JPMorgan said. It lowered its price estimate to 38 euros from 40 euros.

Trading Revenue

The five biggest U.S. investment banks have seen their combined revenue from trading fixed income, currencies and commodities fall 13 percent to $15.1 billion in the first three months of the year from the same period in 2013, data compiled by Bloomberg Industries show. Deutsche Bank, which relied on that business for 22 percent of its income last year, is due to report first-quarter earnings on April 29.

UBS said Deutsche Bank’s common equity Tier 1 ratio, a key measure of financial strength, may fall to 9.1 percent from 9.7 percent at the end of last year as it implements new regulatory standards for valuing trading book assets.

Deutsche Bank has set a goal of a common equity Tier 1 ratio of more than 10 percent for the end of March next year.

The bank expects “some volatility and potential downward pressure” on capital ratios in coming quarters as it implements European Union standards, Chief Financial Officer Stefan Krause said in January.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Mark Bentley, Cindy Roberts

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