Christian Sewing, Deutsche Bank’s chief executive. The bank’s shares have risen 75% since March but the outlook is far from positive © Bloomberg

It is more than a decade since Deutsche Bank’s glory days, when an investment bank that appeared to rival Wall Street’s finest was rewarded with a surging share price. The 2008 financial crisis and the regulatory changes that followed it proved that many big banks — and Deutsche possibly most of all — had feeble foundations. The German lender has not made an annual profit for shareholders since 2014.

This year, the Covid-19 crisis has wreaked havoc on the global economy and further dented banks’ prospects. And yet Deutsche’s fortunes over the past few months have taken a sharp turn for the better. Were doubters wrong to write the bank off?

Consider exhibit one: a surprising quarterly profit.

In April, the bank reported net earnings of €66m for the first three months of the year. Hardly stellar, but enough of a shock — compared with analyst expectations of a steep loss — that its shares jumped by more than 10 per cent.

That sunny sentiment was clouded a bit when it seemed that Deutsche’s ambitious restructuring plan had been thrown into doubt by an inability to cut jobs as planned amid the pandemic, and because loan losses would be far higher than forecast. But this was not enough to dispel the positive mood.

Which takes us to exhibit two: a thriving share price. 

European stocks in general have had a decent run in recent weeks, albeit from a low base. The Stoxx Europe 600 index rose nearly 3 per cent in June, outpacing the S&P 500, as bullishness on US equities faded. In part this was unsurprising after such a run-up in US valuations in previous weeks, but there is also mounting concern about the Trump administration’s handling of coronavirus and new spikes across the country.

At the same time, a sharp decline in infection rates in Europe has fed optimism among investors. They have also been encouraged by the European Central Bank’s credible response to the crisis and hopes that Angela Merkel, the German chancellor, can galvanise a transformative €750bn eurozone recovery fund.

European lenders have had a better time, too. The Euro Stoxx Banks index has rallied about 30 per cent since the depths of the crisis in mid-March, easily outperforming US bank stocks.

Notwithstanding such buoyant performance overall, Deutsche’s stock bounce after those first-quarter results stood out. True, the bank’s valuation remains pitiful: its price-to-book ratio — a common valuation measure which compares a company’s market value to that of its net assets — stands at just 0.3 times. Wall Street rivals trade close to parity with their book values.

Still, Deutsche’s shares have rebounded nearly 75 per cent since their March low, significantly outstripping those of its European peers.

Exhibit three: the latest episode in the Wirecard saga.

As recently as mid-June, the payments provider had boasted a stock market valuation of nearly €13bn, despite 18 months of Financial Times reporting about suspected fraud at its core. Towards the end of last year, according to a report by Bloomberg, the German payments group had even talked to Deutsche about a deal that would have subsumed the once world-topping lender (Wirecard's market cap exceeded Deutsche’s for long periods in 2019).

That gall has at least been stymied. Following its catastrophic fall from grace and collapse into insolvency at the end of last month, Wirecard has been forced to appoint administrators to hawk its assets to anyone who might buy them. With bittersweet irony, the perennially weak Deutsche has been asked to rescue Wirecard Bank, the defunct group’s lending unit. 

It is hardly the kind of boost that would rekindle memories of 2007, when Deutsche was briefly the world’s biggest bank by assets. These days, the challenge is more about overturning past humiliations.

Sadly for Christian Sewing, Deutsche’s valiant chief executive, a few relatively happy months does not make for a positive outlook.

It is hard to see how the bank can hit its cost savings target, despite management assurances, given that restructuring efforts were paused during the pandemic lockdown. The bank appears to have taken a far from conservative approach to provisioning for prospective loan losses — it has set aside a fraction of the amount peers did. And its original plan and profit projection gave it little scope for setbacks, let alone a global economic crash. Second-quarter results later this month will be telling.

Deutsche turned 150 in March, amid very muted celebrations. Little wonder.

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