Deutsche Bank's Profitability Has Been Impacted As A Result Of A Downgrade By Bank Of America

Deutsche Bank's shares could be sold at a bargain price according to Bank of America, according to its quarterly report.

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Rohith Chandra-Rajan, an analyst with Rohith Chandra-Rajan & Co., has downgraded the European bank's shares from neutral to underperform as the company faces challenges in terms of profitability.

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There is no question that Deutsche Bank is struggling to improve profitability since the growth rate is heavily dependent on volume, which consumes costs as well as capital resources. Consequently, Chandra-Rajan wrote in a Friday note that weak profitability and regulatory headwinds are likely to limit RoTE to 6-7% due to weak profitability and regulatory constraints.

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The shares of Deutsche Bank are outperforming the market this year. In the year 2023, the stock of European banks is up by more than 8%, compared to the S&P 500's 6% gain. To kick off the new year, the Stoxx 600, Europe's benchmark index, is also outperforming this year's benchmark index. During 2022, Deutsche Bank lost nearly 6% of its value, but it still outperformed the broader index, which had a drop of roughly 19%.

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As a result, the analyst believes that there will be a "modest downside" going forward. In the premarket, shares of Deutsche Bank's U.S.-listed company dropped by 2.8%.

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It is anticipated that core growth will slow to 3% from 2022 to 2025, a prospect that does not appear to be priced into the stock, according to the analyst who wrote the note.

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“ Based on 7.5x PE, we see stronger momentum, better profitability, and more attractive capital distributions elsewhere in European Banks, and downgrade Deutsche Bank from Perform to Underperform,” Chandra-Rajan concluded.