Whatâs Going On Here?In what might be a once-in-a-blue-moon moment, Deutsche Bank announced a better-than-expected first quarter late on Sunday â and its stock rose 10% on Monday. What Does This Mean?Germanyâs biggest bank has been struggling for a while, even after switching CEOs in 2018: it hasnât had much success so far in ditching risky investment banking activities for more stable commercial banking, itâs been embroiled in a variety of money laundering scandals, and last year, it announced plans to fire one-fifth of staff and sell off parts of its business to rivals. Suffice to say analysts were pessimistic about the bankâs prospects.
That might be why investors were surprised to hear Deutscheâs revenue was up last quarter, and that its profit had beaten their expectations of a loss. The bank â like its peers â probably had its trading business to thank for that. Investors still have reason to be skeptical, mind you: Deutsche put more than $500 million aside in case of future loan losses, and warned it might keep less cash on hand than itâd promised this year. Why Should I Care?For markets: Germany wins the day.
With Germany emerging from coronavirus lockdown, investors in the countryâs stocks might be starting to loosen up a bit too. Commerzbankâs share price rose 4% following Deutsche Bankâs news â the rival's now more likely to report better-than-expected earnings in its own update â while industrial giant Bayerâs rose 5% after it reported a stronger-than-expected quarter and unchanged annual forecasts.
The bigger picture: Honey, I shrunk the earnings.
Analysts, on average, think European companiesâ 2020 earnings will be 17% lower than a year ago, but Morgan Stanley thinks it could be worse: the bankâs company analysts think earnings will fall 25% this year, while its âtop-down strategistsâ reckon it could be as bad as 45%. Both sets of analysts are more optimistic for 2021, forecasting 21% and 40% earnings growth next year respectively. | 