Stuck in a vicious circle ?
Bloomberg News reports that Deutsche Bank, which runs the biggest investment bank in Europe, is stuck in a vicious circle as co-CEO John Cryan grapples with an impaired business that needs more capital, which the bank would struggle to raise if it tried to tap investors, according to Berenberg.
The bank’s biggest problem is excessive leverage, Berenberg’s James Chappell wrote Monday in a note that said the bank faces 'insurmountable headwinds'. He cut his rating to sell from hold and reduced his target price for the stock to 9 euros, the lowest among more than 30 analysts tracked by Bloomberg and almost 40% below current levels.
Efforts to sell assets will be hampered by illiquid credit markets, while Cryan will also struggle to boost capital as the investment-banking industry is in 'structural decline', Chappell wrote. Cryan, jointly in charge of Deutsche Bank for almost a year, has sought to bolster capital buffers without tapping investors.
'It’s hard to see how Deutsche Bank can escape this vicious circle without raising more capital', Chappell wrote. 'The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see Deutsche Bank succeeding'.
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