By Christian van Beek, Director, Financial Institutions

The investor's exit comes at a time when the current environment does not appear very promising for the German banking sector. However, we do not see this as the sole driver for the divestment, as the balance sheets of Deutsche Bank and Commerzbank are stronger than they have been since the global financial crisis and even before.

The German corporate sector has remained cash rich through the pandemic and is more resilient than European peers to the downside risks of slowing growth, rising inflation and other macro headwinds. Although the positive trend on the banks' earnings currently appears less favourable than at the beginning of the year, we maintain our positive view of the banks’ paths.

Pointing to active buyer interest, the DB and Commerzbank block trades were oversubscribed. Capital Group’s sale of its 5.8% stake in Commerzbank for EUR 475m and its 5.6% stake in Deutsche Bank for EUR 1.27bn followed its sale of a GBP 900m block of Barclays stock at the end of March.

Speculation about the reasons behind Capital Group’s actions around Deutsche Bank and Commerzbank was raised as they came on the heels of stock sales by Cerberus in the same banks in January and February. But Cerberus had pursued an activist strategy geared to creating a merger between Deutsche Bank and Commerzbank. Once this plan became unlikely, the strategy quickly ran out of steam.

In any case, Capital’s exit is unlikely to change Deutsche Bank and Commerzbank’s transformation programmes, both of which were updated with new performance targets in recent weeks.

Deutsche Bank’s new targets, unveiled on 11 March in the wake of reporting its highest annual profits since 2011, include a 2025 post-tax RoTE target above 10%, compound annual revenue growth of 3.5%-4.5% for 2021-25, a cost-income ratio of below 62.5%, a CET1 capital ratio of approximately 13%, capital distributions of EUR 8bn for the 2021-2025 financial years. The financial targets came alongside more ambitious sustainability, talent and diversity goals.

Commerzbank’s 2024 targets, published on 1 March, see revenues increasing to EUR 9.1bn (up EUR 600m from the previous target largely thanks to additional revenues from mBank in Poland), operating profits of EUR 3bn, a EUR 5.3bn-EUR 5.4bn cost target, a potential capital payout to shareholders of EUR 3bn-EUR 5bn, an RoTE target of 7%, and a cost income ratio of 60%. Commerzbank’s largest shareholder, the German government with a 15%+ stake, is fully behind the bank’s strategic realignment efforts.

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