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08/11/2019Recovery on the stock exchangeThe deceptive comeback of the German banks
Christoph Rottwilm
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Ralph Orlowski / REUTERS
Deutsche Bank and Commerzbank in Frankfurt.
The boom on the stock exchanges has also pushed up the prices of German bank stocks. For investors, shares of Deutscher Bank, Commerzbank and Co. remain a risky bet.
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Shareholders of Deutscher Bank and Commerzbank, the two most respected German financial institutions on the stock exchange, have made a highly unusual experience over the past few weeks: price gains.
For years, the papers of both houses are under constant pressure. The public was particularly attentive to the downturn of the troubled Deutsche Bank, whose stock fell from more than 80 euros to less than 10 euros. It does not look better at Commerzbank in the long run: Before the big financial crisis and the partial entry of the state into the bank, its paper cost at times significantly more than 200 euros. In the meantime, the Commerzbank share is not even trading at six euros.
Since the past few weeks were a small ray of hope. The stock of the Deutsche Bank stock market chart rose by about 4 percent in a month's view, even though the publication of the latest quarterly results just a few days ago triggered another veritable price drop. The stock of the Commerzbank stock exchange chart has performed even better since the beginning of October: With a price increase of more than 10 percent, the stock even beat the Dax stock market chart, which only made it around 7 percent during the same period.
Hoping for better times for the afflicted shareholders of both institutions? Probably not. Because a large part of the gains are likely to be due to causes that both banks and their managers have no influence at all.
The market environment for banks remains difficult
First and foremost is the generally good mood on the stock exchanges in recent weeks, which has allowed prices to rise on a broad scale. The background was an apparent trade-off between the US and China and the prospect that the generally anticipated slowdown could not be as severe as expected. In this environment, investors especially took hold of paper that had been sold particularly heavily in the turbulence - such as in banks.
"Bank stocks have come under pressure in recent months due to economic concerns and falling interest rates", observes Manuel Mühl, equity analyst at DZ Bank. "At the currently very low valuation level, they were therefore able to benefit from the more positive overall mood on the stock markets."
In addition, according to the analyst, an improved interest rate environment: "The risk appetite of investors has risen again recently," he says. "As a result, demand for safe havens, such as government bonds or gold, has declined, which has led, inter alia, to a rise in ten-year government bond yields, which benefits bank stocks."
Analysts are skeptical
However, according to experts, hardly any reasons for the increase in the share price at Deutscher Bank and Commerzbank, which are directly related to the houses, are found. On the contrary, both institutions appear to be worse off than most international competitors.
"Many European and already operating in a more positive environment US banks have exceeded their quarterly results last expectations," says analyst Mühl. In conclusion, however, he remains skeptical: "Overall, the environment for European banks remains tense."
In keeping with this, Deutsche Bank once again reported a quarterly loss at the end of October. After a loss of more than three billion euros in the second quarter, the deficit this time still amounted to more than 800 million euros, owing mainly to the ongoing restructuring of the group. Thus, the bank was apparently again upsetting its investors, as can be seen in the spontaneous price slide by about 6 percent.
Commerzbank, on the other hand, was initially able to surprise its shareholders with positive news: profits rose by 35 percent to almost € 300 million in the third quarter, more than analysts had expected. However, the damper came a few days later when the money house cashed its targets for 2019. And the Commerzbank put it one step further: Given the negative interest rates in Euroland, the bank will now also introduce penalty interest for customers with high savings - a horror scenario for savers.
No wonder, then, that observers outweigh skepticism. "I do not see the sometimes quite positive price development of European banks as fundamentally justified," says Michael Seufert, bank analyst at Nord LB. It is more a technical reaction to the long decline in value, which has almost pushed the European bank index back to the level of the global financial crisis.
Negative interest rates in Euroland - also Commerzbank introduces penalty interest
"Given a variety of negative factors for the financial institutions, I expect in the near future with no sustainable upside, which would justify a higher valuation of the bank shares," said Seufert. As examples of stress factors he mentions: the economic slowdown, negative interest rates, strong competition, digitization costs, the competition of tech companies and more.
The assessment of VP Bank from Liechtenstein sounds similar. "Basically, we are neutral to skeptical towards the European banking sector for medium to longer-term positioning," says Harald Brandl, the company's equity strategist. He cited the reasons for this: lack of viable strategy concepts, a difficult economic environment in an economic area heavily dependent on the manufacturing sector, a lack of international growth areas, and the regulation of the banking sector, which is still too extreme.
For the shareholders of German banks, this can only mean one thing: they should probably enjoy the unusually good feeling that they are currently gaining in price. It could be over soon.
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