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The case study is set in mid-2012 as the new co-CEOs of Deutsche Bank are about to speak in an analyst call. Various factors affecting a bank's situation in a changing global industry have to be analyzed (e.g. leverage and credit quality). The same goes for the implications such as that of Deutsche Bank and the banking sector and more broadly of Basel III.
Yiorgos Allayannis; Gerry Yemen; Andrew C Wicks; Matthew Dougherty
Harvard Business Review (UV6662-PDF-ENG)
April 02, 2013
Case questions answered:
- How has the orientation of Deutsche Bank changed over time in terms of its business segments and global strategy? Has this orientation been successful?
- What do the historical ratios tell us about the bank's profitability?
- What is the financial outlook for the bank in view of Basel III and the eurozone debt crisis? Feel free to research and update the case here.
- What is your estimated valuation of the bank based on the P/E and P/TB ratios?
- How has the strategic orientation of DB changed over time in terms of 1) business segments and 2) geographic span? Did peers do the same in the past few years?
- What do the historical financials tell us about Deutsche Bank’s profitability (ROA/ROE), capital strength, and leverage?
- How is Deutsche Bank’s outlook after the announced implementation of Basel III? What can the two co-CEOs do?
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Case answers for Deutsche Bank and The Road to Basel III
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Executive Summary – Deutsche Bank and The Road to Basel III
In our analysis of this case, Deutsche Bank and The Road to Basel III, we will cover a brief description of Deutsche Bank Group, history, and business overview for a 10-year period from 2002-12. We will discuss changes in the orientation of the bank during this period, and whether it has been successful, and why.
Furthermore, we will discuss the bank’s profitability in detail using the historical ratios provided in this case study, and its financial outlook after the emergence of Basel III and the eurozone debt crisis. Finally, we will provide an estimated valuation of Deutsche Bank based on the P/E and P/TB ratios given from 2006-12.
Introduction and Overview of the Situation
Like most global financial institutions Deutsche Bank suffered greatly as a result of the global financial crisis in 2008-2009; also, like most institutions, it is being forced to change its structure and operations to comply with new rules and regulations that were developed because of said crisis.
In its almost 150-year-old history, Deutsche Bank has lived through some very tough financial situations, including two World Wars and a Great Depression, but after each setback Deutsche has come back stronger and stronger, growing to become one of the most powerful financial institutions in the world.
It has proven to be very effective at adapting to changing times in a continuously evolving industry, while there were changes in leadership in 2012, and it was somewhat struggling to get on track to the new Basel III standards we believe that it’ll undoubtedly manage to get back in the right direction.
Established in Germany in 1870 with the goal of “circumventing the supremacy of British banks that had dominated international foreign trade” Deutsche went on to do just that, almost immediately, by diversifying and by establishing trade financing and commercial investment banking services internationally.
Through the wars and the great depression Deutsche suffered significantly, even more than other international institutions, due to its ties to Germany, it was even temporarily broken up post-WWII. In the late 50’s it began to grow again, doing such a successful job that it grew to be one of the most important banks in the world by 2012.
In our analysis, we’ll explore Deutsche’s financial reporting for the past ten years and analyze the challenges it’s facing to successfully and profitably adopt Basel III’s new financial regulatory frameworks.
The orientation of Deutsche Bank
As previously mentioned, Deutsche has been very effective at changing with the times and making smart profitable investments and business decisions. Right from its establishment it began with the goal of being one of the first German banks to do business internationally and disrupting the established leadership of the British banks. It very quickly grew to be the dominant bank in its home Germany, buying up small banks that didn’t survive the 1870’s crisis and becoming the leader in trading government-issued securities.
After WWI, the bank was forced to downsize and prioritize survival above all else, but again it emerged strong, growing again to become a national leader. Then, during WWII Deutsche took advantage of the German invasion of Europe to grow its reach and helped the Nazis finance their operations. Suffice to say that the fall of the Nazis resulted in the…
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