The Frankfurt-headquartered bank, Deutsche Bank, said their 91,500 employees are set to be cut by just over 20 percent, to 74,000, in an unprecedented round of departures. Strategist of CCB International Securities Mark Jolley warned that European Banks may not yet be “out of the woods. He also agreed that this latest decision by Deutsche Bank could make them un-investable for the majority of fund managers as this “restructuring” process is not a quick fix.
Mr Jolley told CNBC “The first point to make is that this restructuring has taken a long time to come through.
“I think people have been expecting them to cut the equity business for two or three years and it hasn’t happened so I don’t think it is a preemptive move by any stretch.
“Secondly I think from a market perspective all of the European Banks have undisclosed bad loans prior to 2017.
“So even with this the market just doesn’t know what the balance sheet really looks like at the main European banks that have problems.
“On top of that in a negative interest rate environment, it is quite taxing on the banks so from my point of view I don’t think the European banks are out of the woods by any stretch.
The CNBC host responded: “The ratings are incredibly low though, one could argue that from a value perspective this is a bank that has already been very highly derated by the market.
“Some corporate activity may attract a little bit of bargain hunting.
Mr Jolley agreed and replied: “If you just look at the European Central Bank (ECB) and how well supported these banks are going to be you probably want to be looking at the debt.
“But I think as an equity holder in a bank that is in trouble, even at this sort of level you can still take a bit of a bath, we saw that in the last crisis.”
CNBC host Sri Jegarajah then posed questions to Mr Jolley on how investable the bank is as things stand.
Mr Jegarajah said: “One top shareholder is quoted as saying Deutsche today is uninvestable for most active fund managers and that won’t change fast.
“It is a ten-year task to reposition the bank, do you hold the stock?
After a pause, the strategist said: “ I would tend to agree that you need to be very careful with any bank that is trading well below book value.
“I mean I haven’t looked at the valuation of Deutsche recently but last time I looked it was about 0.2 times book.
“That is uninvestable territory for most conventional fund managers, I would say that is a fairly conventional view.”