Deutsche Bank Debt Revenue Faces ECB Challenge, BofA SaysNicholas Comfort
Deutsche Bank AG will probably see revenue from debt trading come under pressure, compromising a key strategy, should the European Central Bank announce quantitative easing measures to bolster the economy, Bank of America Corp. said.
BofA, which added Europe’s biggest investment bank to a list of least-preferred financial stocks today, said that any steps from the ECB would cut earnings from fixed income, currencies and commodities in Europe as volatility eases.
“Deutsche Bank thinks it will be a key beneficiary of a turning FICC cycle, when it happens,” London-based BofA analysts including Michael Helsby and Alastair Ryan said in an e-mailed report. “We are not convinced.”
The company said this month that it will raise 8 billion euros ($10.9 billion) by selling shares to help grab market share in fixed income and meet tougher regulations. Investment banks across the globe are weighing how to weather a decline in revenue as clients hold off on trades and costs from lawsuits and regulatory probes eat into capital.
Co-Chief Executive Officer Anshu Jain said in an interview with Bloomberg Television yesterday that Deutsche Bank will reposition in Europe “where the tectonic plate movement is really happening.”
Deutsche Bank rose 0.4 percent to 30.42 euros at 12:30 p.m., cutting losses this year to 12 percent, the biggest drop among the Bloomberg Europe Banks and Financial Services Index after National Bank of Greece SA.
A Deutsche Bank spokesman declined to comment on the BofA report in a phone interview from Frankfurt.
BofA said Barclays Plc is on its most-preferred list of financial stocks because it is making a “fundamental shift away from investment banking toward higher return-on-equity retail and commercial banking.”
ECB President Mario Draghi has primed investors for the announcement of monetary stimulus at next week’s Governing Council meeting. After keeping rates at record lows on May 8, Draghi told reporters that the council is “comfortable with acting next time,” sending the euro and money-market rates plunging.
Draghi said at an ECB conference this week in Sintra, Portugal, that the ECB could buy asset-backed securities as a way to add liquidity to the euro-area financial system. Last month, he said that a worsening of the medium-term inflation outlook would justify broader-based asset purchases.