Greg:
re <<Could the Cinderella Stock Market Turn Into a Pumpkin?>>
Here's an article about Deutsche Bank, the employer of Edward Yardeni. Not very flattering, looks like either Ed's been giving his employer bad advice or they don't listen to him:
From Business Week November 2:
COMMENTARY: BANKERS TRUST IS THE LAST THING DEUTSCHE NEEDS
For months now, Deutsche Bank (DTBKY) chief Rolf E. Breuer has been telling anyone who would listen that his bank might buy a major U.S. investment bank. ''If we see opportunities, we'll seize them,'' he says. And now that the emerging-markets crisis has caused U.S. bank stocks to plunge, cash-rich Deutsche Bank appears ready to start doing a little bargain-hunting: Deutsche has held preliminary talks to buy troubled Bankers Trust Corp. (BT), whose capitalization even now is barely above its $5 billion net asset value. On Oct. 20, the share price of both banks jumped on speculation about a possible deal.
It's strange that Deutsche Bank's shares would rise: In German financial circles, even the idea of such a bid is seen as evidence of just how badly Germany's biggest bank is floundering. Its investment-banking strategy is in tatters, and there are widespread rumors, which are denied by the bank, that it has suffered huge trading losses as the financial crisis and U.S. rate cuts have caused German government-bond spreads to widen unexpectedly. Even with deal rumors giving them a boost, Deutsche's shares are trading at not much more than their net asset value. And its top management is deeply divided.
ORDER AT HOME. Indeed, outsiders speculate that Deutsche may be considering a troubled target because its management couldn't survive the takeover of a stronger bank--say J.P. Morgan & Co. (JPM), which it is also said to have considered. ''A reverse takeover of Deutsche by Morgan would make a lot more sense than buying Banker's Trust,'' snipes a consultant who has worked with Deutsche. In reality, the last thing Deutsche needs at this point is to take over a troubled bank. Analysts estimate it has poured at least $3 billion into its own investment bank during the past decade and still hasn't gotten it right. Rather than making bold moves in the U.S., Deutsche Bank should be getting its house in order at home.
Deutsche could take a lesson or two from German behemoth Daimler Benz (DAI), in which the bank has a 22% stake. Back in the early 1990s, Daimler too seemed troubled. But a management shake-up and concerted restructuring got it back on track. Now, it's within days of completing one of the most daring deals in German history, the $88 billion merger with Chrysler Corp. (C). In this case, there's no doubt about which company is running the show: It's Daimler CEO Jurgen Schrempp and his team, even though Chrysler's management is also strong.
Unlike Daimler, however, Deutsche Bank is moving too slowly to shake itself up inside Europe. That's why most analysts have little hope that Breuer's plan to raise pretax return on equity to 25% by 2001 will succeed, especially with emerging-market losses now crimping returns. The bank needs to cut deeper, by shuttering several hundred of its 2,288 branches--a move it has so far resisted. It also needs to give up on the mergers and acquisitions end of its investment bank for now. That's a field where it has consistently failed despite doling out huge bonuses to lure talent.
One good sign is that Deutsche seems to be quietly bolstering its management ranks. Michael Endres, the board member who oversees the bank's back-office operations, is leaving at yearend. Ex-colleagues say that Ronaldo Schmitz, a board member partly responsible for investment banking, has had his duties cut back. The bank, however, denies rumors that he, too, will leave. Endres is expected to be replaced by Hermann-Josef Lamberti, 42, an ex-IBM executive. Deutsche's investment bank is now run by Josef Ackermann, brought in two years ago from Credit Suisse. He is widely seen as a possible heir to Breuer, 60, who is expected to retire in 2002. But the bank badly needs more outsiders to challenge its stuffy consensus management system. Non-Germans with investment-banking experience should get top priority.
OPAQUE BOOKS. Finally, Deutsche Bank needs to take a more open approach to shareholders. In contrast to Daimler, which won the confidence of investors by adopting U.S. accounting standards, Deutsche's financial reporting remains relatively opaque. Analysts fear Deutsche Bank would have to pay cash for a U.S. acquisition, while Daimler was able to do a share deal for Chrysler, partly because its shares are listed in the U.S. To raise money, Deutsche Bank might have to sell some of its $23 billion in industrial holdings. That would require the bank to pay Germany's 50%-plus capital-gains taxes. Opening its books wider and increasing profits, as Daimler has done, would be a cheaper option in the long run.
Of course, Breuer is right to go looking for opportunities. But the place he should be looking first is his home market. And the best model to follow is probably not flashy U.S. investment banks but the maker of his chauffeur-driven car.
By Thane Peterson
Best Regards,
Greg Gimelli
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