October 4, 2016

Pegler’s market report – 04.10.16: A week to forget for Germany’s flagship lender

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (04.10.16) Business on page 21 under the title Pegler’s Market Report:

A week to forget for Germany’s flagship lender

It’s been a week to forget for German lender Deutsche Bank as concerns about the bank’s stability took centre stage. Shares have plunged by almost 30pc in just three weeks because of a $14bn fine proposed by the US Department of Justice earlier this month for mis-selling mortgage backed securities. Deutsche’s value has more than halved in value this year after it posted its first full-year loss since 2008 in January. The IMF also warned in June that Deutsche’s links to the world’s largest lenders make it a bigger potential risk to the wider financial system than any other global bank. There have been reports that Germany’s Chancellor Angela Merkel had ruled out any state assistance for the lender but given Deutsche Bank’s integral position in the German banking and financial sector that may have to be revisited. The shares are likely to stabilise once Deutsche’s fine is settled.

Back on home soil, data published last week confirmed Britain’s economy grew faster than previously thought in the second quarter of the year. Consumer spending also increased strongly, rising 0.9pc in the run-up to the EU referendum in June. Household consumption increased by 3pc compared with the same period of 2015.

As banking stocks tumbled under the pressure of Deutsche bank, Royal Bank of Scotland has unveiled sweeping structural reforms ahead of new rules to separate its retail operations from riskier parts of the business. The Royal Bank of Scotland brand will now largely be confined to Scotland, with the NatWest name replacing it in England and Wales.

Oil stocks found some strength after OPEC struck a deal to curb oil output for the first time since the height of the global financial crisis. Despite the initial euphoric reaction by oil prices, analysts remained sceptical that the world’s biggest cartel will implement the agreement to limit production during its November meeting.

Elsewhere, shares in Capita headed south as the international business process outsourcing and professional services company cut its full-year profit guidance by 13pc citing a slowdown in certain businesses.

After being fined £5m relating to last year’s rollercoaster crash at Alton Towers, Merlin Entertainment also slipped when it lowered its full-year earnings margins forecast due to weak trading at its London attractions. Merlin also own Sea Life Brighton.

By David Pegler, Brighton Capital Management