Deutsche Bank must rely more on stable businesses for profits, investor Deka says

Deka Investment, a top Deutsche Bank shareholder, is urging the lender to increase profits from its asset management, retail, and corporate client divisions to reduce reliance on the volatile investment banking unit. Andreas Thomae of Deka Investment stated that the investment bank still accounts for the majority of profits and carries higher risks, despite Deutsche Bank's 2019 restructuring aimed at diversifying revenue streams.

Analysis

Deka Investment, a prominent shareholder in Deutsche Bank (DBKGn.DE), is publicly advocating for the bank to derive a greater proportion of its profits from more stable business lines, specifically asset management, retail, and corporate client divisions. This call, articulated by Andreas Thomae of Deka, underscores a concern that the volatile investment banking sector, despite its higher inherent risks, continues to account for the "lion's share of profits." Thomae explicitly stated that Deutsche Bank has "a lot of catching up to do, particularly in the retail business." This shareholder pressure comes even after Deutsche Bank initiated a strategic overhaul in 2019 with the stated aim of reducing reliance on investment banking revenues, an effort that has yielded "mixed results." The current situation, marked by a cautious sentiment, highlights an ongoing challenge for Deutsche Bank to effectively diversify its earnings streams and achieve a more balanced risk profile, a key consideration for its long-term financial stability and performance.

Key Decisions for Investors

• Investors should closely monitor Deutsche Bank's future strategic communications and execution plans regarding the rebalancing of profit contributions from its investment bank towards more stable segments like asset management, retail, and corporate banking.
• Future earnings reports from Deutsche Bank should be scrutinized for tangible progress in growing revenues and profits within the targeted stable divisions, especially the retail business, as this will be a key indicator of the strategy's success.
• Given the "mixed results" of the 2019 overhaul, investors should critically assess the bank's capacity to implement these changes effectively and consider the potential impact on the bank's overall risk profile and earnings predictability if reliance on the investment bank persists.