Damo: Deutsche Bank (DB.US) private banking business may become an undervalued “profit engine” and raised the target price to 29.5 euros

The Zhitong Finance App learned that Morgan Stanley published a research report raising the target price of Deutsche Bank (DB.US) European stocks from 29.2 euros to 29.5 euros, maintaining an “gain” rating, and pointed out that Deutsche Bank's private banking business is a core growth point of current market undervaluation, and its profit potential is expected to surpass market consensus.

The bank said that Deutsche Bank's private banking business is divided into two parts: wealth management and retail banking. Although the retail bank basically achieved break-even in 2024, the bank expects its return on equity (ROE) to rise to 4% in 2025 and reach a further 10% by 2028. Meanwhile, the ROE of the wealth management business stabilized at around 20%, and profit before tax (PBT) increased by an average of about 6% per year. The sector's overall PBT performance is expected to be around 10% higher than market consensus.

The bank's team of analysts believes that with the completion of the “Unity Project” (Postbank) integration plan, Deutsche Bank has reached a turning point. By optimizing branch networks, promoting digital channels, and adjusting fee structures, retail banks' profitability will gradually improve.

Furthermore, although investment banking still accounts for 45% of Deutsche Bank's profit before tax, and the short-term outlook is uncertain (Morgan Stanley has lowered the division's profit forecast for 2025 by 3%), the increase in the profitability of private banking business will partially offset this pressure. The private banking business's contribution to the Group's profit is expected to rise from 26% in 2024 to 30% by 2027, driving the Group's overall return on equity (ROTE) to 11.5% in 2028.

Deutsche Bank also recently raised its core Tier 1 capital (CET1) target from 13% to 13.5%-14%. Morgan Stanley believes this adjustment is aimed at seeking regulatory approval for the second round of share buybacks (estimated at 250 million euros). The report emphasizes that although an increase in capital targets may put pressure on stock prices in the short term, an increase in profitability will drive valuation repair.

However, the report also reminds investors to pay attention to potential risks, including that the US “Section 899” may impose additional tariffs on European banks' business in the US.