Deutsche Bank (DB) Unveils Bonds Buyback Plan: Worth A Look?

With the aim of reducing its liquidity reserve, which is maintained at a higher cost, Deutsche Bank (DE:DBKGn) Aktiengesellschaft (NYSE:DB) plans buyback of senior non-preferred bonds worth $1 billion. Per Germany’s largest lender, the planned move will assist the bank to “optimise its future interest payments and maturity structure.”

As of Sep 30, 2018, Deutsche Bank’s liquidity reserves stood at €268 billion, with a liquidity coverage ratio of 148%.

The buyback includes two long-dated securities maturing in March 2025 and January 2028, with a coupon rate of 1.125% and 1.75%, respectively. Notably, the bonds were trading nearly 92 cents and 88 cents on the euro. Deutsche bank’s tender offer, which expires on Nov 27, if repurchased below the issue price, will benefit the bank in terms of profit.

“Using a small part of our high cash position to repurchase senior non-preferred securities reflects our aim to redeploy excess liquidity without taking undue risk,” chief finance officer James von Moltke noted, adding the move will benefit all shareholders of Deutsche Bank.

With strong liquidity position, we believe Deutsche Bank will excel higher, moving ahead. So, keeping this in mind, is the company worth considering? Let’s dig deeper into its financials and fundamental strengths.

Stock Seems Undervalued: Deutsche Bank seems undervalued when compared with broader industry. Its current price-to-book and price-to-sales ratios are below the respective industry averages.

Earnings Strength: Deutsche Bank recorded an earnings growth rate of 32.1%, over the last three to five years. Retaining its earnings momentum, the earnings growth rate is anticipated to be around 160% for the current year and 94.4% for 2019.

Prudent Expense Management: Deutsche Bank's efforts in reducing expenses have started bearing fruits, with reduced non-interest expenses. Notably, adjusted costs (excluding litigation, impairments, policyholder benefits and claims, and restructuring and severance expenses) declined at a CAGR of 5.1%, over the last three years (ended 2017), with the trend continuing into the first nine months of 2018 as well. Notably, cumulative OpEx program savings of €4.5 billion fully met the externally communicated target for 2015.

Deutsche Bank’s shares have depreciated around 23% in the past six months compared with the industry’s decline of 10.1%.

The stock currently carries a Zacks Rank #3 (Hold).

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