Samuel Weber presented his in-depth investment thesis on Deutsche Bank (Germany: DBK, NYSE: DB) at European Investing Summit 2017.
Deutsche Bank: New CEO John Cryan is transforming Deutsche into a “safe” bank that focuses on providing value-added products and services to a diversified client base. The bank’s recent market capitalization does not reflect its potential future performance. Cryan is a credible, capable, and humble CEO with high integrity, a focus on value creation, shareholder orientation, and a long-term business outlook. He wants to make the bank simpler and more efficient, less risky, and better capitalized, with more disciplined execution. He has replaced one-half of the top 200 managers and reassigned another 20% to new positions. He stopped business with high-risk clients and has continued to strengthen internal controls. He has resolved nine of the top twenty litigation issues, comprising 90% of litigation provisions. He has also aligned compensation with performance. In 2016, Cryan earned €3.8 million in total compensation; no manager was paid a bonus, and variable compensation was reduced by 77%. In 2Q17, Deutsche’s liquidity coverage ratio of 144% was higher than that of most peers. If Deutsche generates revenue of €30 billion in 2018, it should earn €8 billion in income before income taxes. This figure should increase to €11+ billion by 2021. Net income should therefore be around €4 billion in 2018 and €5.5+ billion in 2021. Applying a P/E ratio of 15x suggests intrinsic value of €60 billion in 2018 and €82 billion in 2021, compared to a recent equity market quotation of less than €30 billion.
About the instructor:
Samuel Weber serves as chief executive officer of LLP Investments AG. He is also an independent wealth manager, based in Zug, Switzerland. He holds a master’s degree in strategy and international management from the University of St. Gallen.
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