Please ensure Javascript is enabled for purposes of website accessibility

This Is the Best-Performing Large Bank Stock in 2020

By Bram Berkowitz – Aug 27, 2020 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Although Deutsche Bank has had regulatory and operational struggles in the past, it has been able to make progress on strategic initiatives during the pandemic.

The struggles of the banking sector have been well documented, with most bank indexes down more than 30% this year. While some investors are optimistic about the industry, there hasn't been a lot of recovery to show among bank stocks, unlike in other industries. In fact, of the top 100 banks by assets according to the FDIC, only a few have seen their share prices rise above where they started the year.

So, maybe it's fitting that the top-performing large bank stock this year -- by far -- is one that few investors would guess. Deutsche Bank (DB -5.97%) traded for $7.78 per share on Dec. 31 and hit $9.81 at Wednesday's close, representing a 26% gain year to date. Let's examine what is driving this growth during such a difficult time for banks.

Tellers helping customers at a Deutsche Bank

Image source: Deutsche Bank.

Successful revamp efforts

Germany's largest bank was struggling before the coronavirus pandemic. It didn't have one profitable quarter in 2019. And since 2017, it has been dogged by regulatory issues that have not gone away. In May, the Federal Reserve sent a letter to the investment bank criticizing its anti-money-laundering internal controls. And on Aug. 5, The New York Times reported that the District Attorney's Office in Manhattan subpoenaed Deutsche Bank last year for documents related to its longtime customer President Donald Tump, including his tax records. 

But concerns about Deutsche Bank's regulatory issues appear to be overshadowed by progress made toward transforming the bank, an initiative that began in 2018. Not only has Deutsche Bank managed to turn a profit in the first two quarters of 2020, but it has accomplished many of its strategic goals amid a difficult environment plagued by the pandemic.

When Deutsche Bank began its revamp, its goal was to whittle down its business to four client-centric divisions: investment banking, corporate banking, asset management, and the private bank. Deutsche Bank's other goals are to exit certain business lines, sharply cut operating costs, invest in technology, and manage capital. Through the second quarter of this year, the bank has shut down its equities sales and trading division. The bank has also slashed $3 billion of annual expenses since 2018, and it plans to chop another $3 billion by 2022.

Deutsche Bank has done all of this while still managing to invest in its business. CEO Christian Sewing said on the company's most recent earnings call that the bank's plan to spend $13 billion on technology between 2018 and 2022 remains intact.

Recently, the bank signed a contract with Google Cloud to "transform its IT architecture," an ongoing process for banks in today's digital world. The partnership will provide Deutsche Bank with enhanced data science capabilities, artificial intelligence, and machine learning. The bank said in a press release that the partnership could give its treasury management clients the ability to do cash flow forecasting and improve cybersecurity. At the private bank, Google will help "simplify the interactions between customers and employees."

Sewing said the bank's goal is to have the company generating annual revenue of 24.5 billion euros and delivering an 8% return on tangible equity by 2022. "With the client momentum that we have created and the changes we have made to our businesses, we are confident of achieving these revenue plans for 2022 even when current market dynamics normalize," Sewing said on Deutsche Bank's most recent earnings call.The investment bank division had extremely strong revenue in Q2.

Watch its progress

Deutsche Bank continues to execute on its strategic initiatives at a difficult time, and continues to provide guidance for the rest of the year, which is a good thing to see for a bank right now. Analysts on Deutsche Bank's earnings call seemed a bit skeptical about the bank's ability to reach its target revenue goal by 2022 with everything going on, and on some of its guidance as well. And there is still a lot of regulatory work Deutsche Bank must do to get into better standing with regulators. But if the bank continues to work its way through its four-year revamp plan like it has in the first half of this year, its stock price should continue to tick up.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Deutsche Bank Stock Quote
Deutsche Bank
DB
$8.34 (-5.97%) $0.53
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$99.17 (-1.39%) $-1.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.