Deutsche Bank and the Road to Basel III

Case1:Deutsche Bank And The Road To Basel III

1.Illustrated from the history of Deutsche Bank in the material,it can be separated into three period of time to analyze its profitability ratios in terms of  ROA/ROE from the figure 9.

[pic 1]

In the first period(2002 to 2007),the figures of ROE rocketed form merely 1.75% to 24.97%(peaking at 26.72% in 2006).However,the statistics about ROA didn’t nearly keep zero.This situation owned to the globalization of the Banking Industry,Deutsche Bank concentrated on investment banking activities by increasing its leverage to help it get profitability(Table 1 and Figure 1).The figure of total investment banking activities rose from 30% to 42% while the total commercial and retail banking activities declined from 22% to 19% from 2002 to 2007.

[pic 2]

[pic 3]

However,when the financial crisis happened in the second period,2008,ROE of Deutsche Bank couldn’t stand still and fell dramatically into -12.91% and ROA still kept around zero(-0.18%).Compared with Deutsche Bank,JPMorgan Chase ROA and ROE also declined but still kept positive(Figure 10).It can be seen that although leveraging pattern can help Deutsche Bank to increase ROE but the risk of this pattern it should take is much higher than others.

[pic 4]

In the last period(2009-2011),Deutsche Bank increased its commercial and retail bank assets and increase German Branches to recover in ROE and ROA.By this means,it reduced leverage to avoid the high risk but it was still hard to step back.It showed that the price of high leverage is high,companies or banks need to increase both ROE and ROA but not just one of them.

1.  In the euro zone debt crisis period,lots of banks suffered a big loss.The Basel Committee on Bank Supervision published Basel III to decrease ROE and employ more common equity to help them recover and avoid risk in the future.The Basel III announced Tier 1 which stipulate the minimum equity capital from 4% of rish-weighted assets to between 9.5% and 13.5% of risk-weighted assets.By the lesson of euro zone debt crisis,Deutsche Bank transformed from majority of investment bank assets to the increase of commercial and retail assets in order to meet requirement of Tier 1.In 2012,Deutsche Bank got out of investment banking business and established a solid status in equity capital.

However,they haven’t reach the requirement of Tier 1 by 2013.Moreover,related to Table 2,the data of Deutsche Bank P/E,P/TB,ROA,ROE and Divided Yield are all below the average standard and its leverage go so far as to double compared with average level.It shows that Deutsche Bank has a high leverage but a low profitability.It is hard to say that Deutsche Bank will have a bright future.Reaching the expectation need it to find other ways to reduce the risk and enhance the profitability to find an appropriate range of multiples in shares.

...