Shares of Deutsche Bank hit a record low Monday, down nearly 3%, after UBS downgraded the German lender’s stock to a “sell” rating from “neutral.”
Pointing to tough external events and the low interest rate environment, UBS slashed its price target for Deutsche from 7.80 euros ($7.45) to 5.70 euros.
“We downgrade to sell because we don’t expect operating conditions to improve anytime soon. Deutsche remains a levered market play vulnerable to external events and rising rates are currently a distant hope,” UBS analysts said in a research note on Monday.
Rising rates are good for banks since they are able to lend out money with a profitable rate of interest. Lower interest rates can restrict a bank’s ability to make profits, adding pressure on margins.
The German bank saw its stock hit to a record low of 6.673 euros on Monday morning, just days before its annual general meeting.
A shareholder revolt?
Earlier this month, the shareholder advisory group Institutional Shareholder Services (ISS) called for stakeholders to issue a vote of no confidence in the management.
Deutsche also faces pressure from investors to trim its investment banking division, especially after the collapse of merger talks with Commerzbank. Investment banking (IB) is a specific division of banking related to the creation of capital for other companies, governments and other entities.
“With the share price at close to all time lows, spreads and CDS (credit default swaps) stubbornly high and profitability depressed, the urgency to act is high we think,” UBS said in its note that was published before the share price fall on Monday.
“DB’s IB would have been a key beneficiary of a deal with Commerzbank, as it could have helped to drive down funding costs and spreads and balance the overall profile.”
Deutsche Bank has been in the news for a variety of negative reasons in the past few years — from settlements with the U.S. Department of Justice, to management reshuffles, weak earnings, constant restructuring, merger speculation and steep stock price falls.
Shares of Deutsche Bank are down nearly 5% since the start of this year. The stock is down nearly 40% over a 12-month period and about 75% over a five-year period.
Deutsche and Trump
Shares were also impacted by a report in the New York Times on Sunday that said Deutsche Bank ignored employees’ calls to report Donald Trump transactions to a federal watchdog.
Transactions in 2016 and 2017 triggered automated controls at Deutsche Bank meant to catch illicit activity, and compliance workers then prepared what’s known as suspicious activity reports that they believed should be sent to the Treasury, according to the Times, which cited five current and former bank employees. But the reports were never filed with the government, the article states.
Deutsche Bank denied these reports in a statement on Monday. “At no time was an investigator prevented from escalating activity identified as potentially suspicious. Furthermore, suggestion that anyone was reassigned or fired in an effort to quash concerns relating to any client is categorically false.”
Trump’s relationship with Deutsche Bank has drawn scrutiny in Congress and elsewhere. Trump sued the bank last month to prevent it from complying with congressional subpoenas seeking information about potential suspicious payments.
—CNBC’s Hugh Son contributed to this report.
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