Deutsche laughs in face of fixed income fears 20 May 2014 Germany’s biggest lender reckons its investment bank can generate a 13 pct-plus return on equity after an $11 bln capital hike. That means pretax profit rising 50 pct by 2015 – a major bet that fixed income will cyclically rebound. The joke will be on Deutsche if it doesn’t.
Deutsche is on the offensive in $11 bln share sale 19 May 2014 Germany’s biggest lender is launching a mega rights issue and placing shares with a Qatari sheikh. The mix is messy but the quantum should silence Deutsche’s capital sceptics. And it’s clear the firm is making a big bet on investment banking in the wake of Barclays’ retreat.
Good German growth covers up bad economic policies 15 May 2014 Higher domestic consumption and investment boosted Germany’s GDP in the first quarter, a reminder that the old export-led growth model is giving way to something more helpful for Europe. But current strength allows Berlin to get away with policies that will hurt in the long term.
Pimco outflows are wakeup call for Allianz 14 May 2014 The bond fund saw 22 bln euros of net outflows in Q1. Controversy over the role of founder Bill Gross is arguably a big factor. Allianz, Pimco’s parent, suggests it can take the trials in its stride. But its hands-off approach is becoming increasingly hard to justify.
Investors underrate ThyssenKrupp’s steel woes 13 May 2014 The German industrialist’s restructuring is gaining ground. Investors have responded with enthusiasm to a stronger balance sheet, rising earnings and a better outlook. But the lacklustre steel unit remains a big drag. There are no quick fixes.
Barclays vs Deutsche is now a real choice 12 May 2014 A tactical error over pay helped bounce Barclays into radically changing its investment banking strategy. Rival Deutsche has avoided a similar downscaling of fixed income, and could benefit from any cyclical upswing. But its riskier strategy will mean it needs higher returns.
Alstom chase is distraction from Siemens revamp 7 May 2014 The German engineering giant’s long-awaited new strategy sensibly focuses on improving efficiency and cutting slack. A possible Alstom deal comes at a bad time, even though the French rival would be a good industrial fit. Siemens management has enough to deal with in-house.
Tax steroids justify Bayer’s $14 bln Merck deal 6 May 2014 The German pharma giant is paying an eye-watering 21 times latest EBITDA for Merck’s consumer unit. The price is high in the context of achievable cost savings and hoped-for revenue benefits. But the acquisition makes strategic sense and sizable tax breaks will help.
Deutsche Bank is running to stand still 29 Apr 2014 The German lender’s equity increased by 1 bln euros in Q1. Fixed-income trading was not as bad as feared, and a 1.5 bln euro bond will further boost capital. But rising regulatory costs look sticky. The good news: a much-needed equity raise has now become an easier sell.
Deutsche equity hike would need to hit $7 bln 24 Apr 2014 Germany’s largest bank opportunistically raised $4 bln in a share placing a year ago. A similar sized deal might just suffice to prepare Deutsche for ECB stress tests, new capital rules and litigation. But with investors supportive, a bigger rights issue would make sense.
Scania holdouts risk overplaying their hand 24 Apr 2014 Some minority investors oppose Volkswagen’s $9 bln bid for the rest of the Swedish truckmaker. But saying “nej” is risky. VW has effectively tied its hands, making a sweetener unlikely. The premium is already generous. If the buyout fails, Scania’s shares could fall steeply.
Bull case for SAP starts to emerge 17 Apr 2014 The $100 bln German software group is the latest big tech firm to disappoint investors. Shares fell after currency moves hit Q1 results. Yet the investment case is improving. The stock has cheapened this year, and SAP’s shift to cloud-based databases seems to be working.
Germany takes anti-debt cult a step too far 9 Apr 2014 For the first time since 1969, Germany’s budget will be balanced next year. Some fiscal consolidation is welcome, but Angela Merkel has got her timing and priorities wrong. Super-low interest rates, laggard public investment and Europe’s economic woes call for more spending.
Banks swap rewards for risk on public deals 9 Apr 2014 Deutsche Bank and UBS are now loath to offer long-dated swaps to municipalities. New capital rules make the business less attractive. But after legal tussles and bad publicity in Milan and Detroit, bankers are turning away business on grounds of reputational risk.
RWE, E.ON gain little from German energy revamp 8 Apr 2014 Coal and gas power generators might hope to profit from a reform of costly subsidies for solar and wind power. But while the government is trying to cut costs, the target - almost doubling the share of renewables by 2025 - hasn’t changed. RWE and E.ON will continue to suffer.
Berlin’s housing boom has lessons for London 25 Mar 2014 The German central bank says Berlin’s property prices have risen 25 pct above fair value. But this mini-bubble is unlikely to expand to London proportions. Lending standards make speculation expensive, building is increasing sharply and the Bundesbank is on the case.
BMW shares can come out of the Daimler shadow 19 Mar 2014 For the last year, Daimler’s impressive turnaround has inspired investors. It’s about time for them to rediscover BMW’s strength. A 7 pct share price jump after a strong 2014 outlook statement is a start. But BMW doesn’t yet have the premium over Daimler that it deserves.
Volkswagen has no reason to improve Scania bid 18 Mar 2014 Minority owners of the Swedish truckmaker want more than the 53 pct premium offered by Volkswagen. They’re right to try, but limited medium-term synergies don’t justify topping up a generous bid. Sadly the German carmaker can still fall hostage to its executives’ oversized egos.
RWE’s $7.1 bln oil deal brings respite not rescue 17 Mar 2014 The struggling German utility is selling its DEA oil and gas unit to investors led by Russia’s Mikhail Fridman. RWE has secured a good price which reduces its future capex burdens. But the disposal leaves unanswered questions about RWE’s financial strength.
Market wakes up to Lufthansa turnaround 13 Mar 2014 Shares in the German carrier are up 36 pct in six months. Successful cost-cutting and a strong operating performance explain the upswing. Lufthansa shares still trade at a discount – but it is only midway through its turnaround plan, and its 2015 profit targets look ambitious.