Distressed Valuations: Opportunity to Buy Deutsche Bank?


Currently, Deutsche Bank’s shares are trading at distressed valuations. The bank’s shares are trading at the steepest discount to its book value—worse than the 2008 financial crisis. The determination is made by looking at the company’s PBV (price-to-book value) multiple. The PBV 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 banks’ assets and liabilities are constantly valued at market values. If a company trades lower than its book value, it means that 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 investors’ attention. They’re considered to be generating extremely poor returns.

Distressed Valuations: Opportunity to Buy Deutsche Bank?

Deutsche Bank trades at a PBV ratio of 0.36x. It implies a discount of ~64% to its book value. Such cheap valuations are associated with a bank in crisis. They’re also a sign of the company’s poor profitability. Its peers Credit Suisse (CS), UBS, and Barclays (BCS) trade at a significant premium to Deutsche Bank.

Performance review

Deutsche Bank has been under fire in the past year. The company’s shares fell 25% in 2016. The stock has fallen to all-time lows after the U.S. Department of Justice asked it to pay $14 billion as settlement for its residential mortgage-backed securities investigation. Investors raised concerns about its ability to pay without declaring bankruptcy. Last week, the bank reached a settlement with the U.S. Department of Justice to pay $7.2 billion.