Deutsche Bank Last in JPMorgan’s Investment Bank ‘Pecking Order’

(Bloomberg) -- Deutsche Bank AG was ranked last among major European and U.S. investment banks in the first quarter, according to JPMorgan Chase & Co.

Analysts led by Kian Abouhossein cut the German lender’s first quarter adjusted earnings per share estimate by 7 percent, the most among the eight banks in its so-called pecking order, “mainly on lower trading revenue,” according to a note to investors. “We prefer investment banks with ability to show cost flexibility in a challenging environment,” they said.

January was a terrible month for trading at Deutsche Bank, though February was better, according to people familiar with the matter. The German lender said in its annual report in March that conditions in the business continued to be challenging; UBS Group AG CEO Sergio Ermotti last month described the first quarter as one of the toughest in years and France’s Societe Generale SA announced job cuts after the slump.

“While management delivers on variables it can control, i.e. costs, capital and balance sheet/liquidity, the revenue environment remains challenging,” the analysts wrote. “The big question is on CIB revenues, where it is not clear the franchise is turning around yet.”

The average reduction in the group was 3 percent and UBS Group AG was the only one left unchanged, having been after Chief Executive Officer Sergio Ermotti’s comments on the tough first quarter last month.

Revenue Slide

Deutsche Bank’s revenue from trading securities contracted for seven consecutive quarters and is a focus in the lender’s talks with rival Commerzbank AG about a potential merger. One of the reasons Deutsche Bank is looking for a deal is to move the lender away from its large exposure to the volatile trading business, people familiar with the matter have said.

The current consensus estimate for Deutsche Bank’s first quarter compiled by JPMorgan sees a drop in trading revenue of 18.6 percent. The bank is scheduled to report results on April 26. The first quarter is traditionally the bank’s strongest for trading revenue.

Deutsche Bank stock was trading 1 percent higher on Tuesday, broadly in line with the Bloomberg 500 Europe Banks and Financial Services Index. The shares are up 6.7 percent year-to-date.

Second-quarter revenue will be “key to save yearly performance,” the JPMorgan analysts wrote in their note.

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

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