Could a new boss for Deutsche Bank help revive its beaten-up stock? News that Deutsche Bank Chairman Paul Achleitner has been hunting for another chief executive grabbed the financial industry’s attention during this past week. But just as it was looking premature at press time to organize farewell drinks for current CEO John Cryan, it could also be too soon to turn bullish on the beleaguered German bank’s shares.
In fact, analysts and investors are trotting out plenty of reasons to stay bearish on the stock DBK, +1.16% DB, +1.60% which keeps wallowing far below its 2007 peak, while other financial giants have notched new highs in recent years. Shares are down about 30% this year, putting the company’s price-to-book ratio at 0.4, below even rival Commerzbank’s CBK, -0.94% 0.5.
The latest escalation of well-known tensions between Achleitner and Cryan is just a piece of the Deutsche Bank puzzle, but it’s not looking like a buy signal for the stock, which also trades in the U.S. via American depositary receipts. The maneuvering around the CEO job has “intensified the uncertainty on the direction of the company,” warns CFRA analyst Firdaus Ibrahim in a note. He has backed his sell rating on the stock and cut his price target to 10.50 euros ($12.97), implying a dip from the recent print around €11.
While investors might turn more hopeful with a new CEO, Cryan is not the problem, MainFirst analyst Daniel Regli tells Barron’s. Cryan’s task has turned out to be tougher than the market and analysts had expected. Cryan was hired to streamline the bank, cut costs, work through legal troubles, and more. The British native and UBS veteran was named co-CEO in 2015 and sole CEO in 2016. That year brought a $7.2 billion fine from the U.S. Justice Department to settle mortgage-securities probes stemming from the financial crisis, along with a stock selloff sparked by fears around that fine.
What’s needed for a stock turnaround is stabilization of Deutsche Bank’s top line, says Regli, who has a sell rating and a price target of €10.50. The bank has suffered revenue declines of 10% and 12% in the past two years, according to FactSet data. Management recently cautioned about a hit to first-quarter revenue at its securities business due to a strengthening euro. Some of the revenue slumps for its units have been tied to external factors, from currency headwinds to lower trading activity that’s been an industrywide challenge. A Wall Street Journal columnist once likened Deutsche to “a parched farmer praying for rain,” with the bank dependent on better markets for growth.
Another problem is that a C-suite change doesn’t look easy to pull off. Analysts have fretted about finding candidates for what’s been called the “toughest job in banking.” They’ve highlighted how Achleitner reportedly hasn’t been getting takers in talks so far with other banking bigwigs. The no-thank-yous inspired mock-confusion from German business newspaper, Handelsblatt: “So what is it that has them all running in the other direction? Is it the fact that Deutsche’s COO [Kim Hammonds] just called it the ‘most dysfunctional’ place she’s ever worked? Or could it be the drama surrounding bonuses? Or perhaps all the backstabbing and finger-pointing?”
A few big shareholders are reportedly impatient with Cryan, who said in a memo during the past week that he is “absolutely committed to the bank.” But other investors and some analysts have said Achleitner deserves blame for the bank’s woes—and worry that a new CEO could make things worse. That’s not a scenario likely to turn around the stock