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Do Deutsche Bank’s Distressed Valuations Provide a Good Opportunity?


Nov. 3 2016, Updated 10:04 a.m. ET

PBV ratios

Deutsche Bank’s shares are currently trading at distressed valuations. The bank’s shares are trading at the steepest discount to its book value, worse than during the 2008 financial crisis. This can be judged from the company’s price-to-book (or PBV) multiple. The price-to-book ratio compares the company’s current market price to its book value. PBV ratios are commonly used to compare financial services (XLF) firms because most assets and liabilities of banks are constantly valued at market values. If a company trades lower than its book value, it means the asset value is overstated or the company is generating a poor return on its assets. Generally, banking stocks trade between one to two times its book value. Stocks trading lower than their book value attract investor’s attention as they are considered to be generating extremely poor returns.

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Deutsche Bank trades at a PBV of 0.29x. This implies a discount of ~71% to its book value. Such cheap valuations are associated with banks in crisis and are also a sign of poor profitability. The company’s peers Credit Suisse (CS), UBS, and Barclays (BCS) trade at a significant premium to Deutsche Bank.


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