Aswath Damodoran has weighed in on the Deutsche Bank debacle. For those who are not familiar with him, he is a very prominent NYU Finance professor and author of over 30 books on corporate finance and valuation - and a man whom I respect greatly. As a matter of fact, I cut my teeth on his valuation books early on in my valuation pursuits. That being said, I'm in disagreement with his valuation of DB shares on his blog. On said blog, he went through a quick history of DB's situation and then put together an open sourced model where he found DB to be at least 35% undervalued. The other users of the open sourced model have come to an average price that's even higher.
I value DB (using Aswath's model, not our own) at a dramatically lower price than everyone on that list, save one. Why the difference? Well, if you remember my videos on knowledge...
Aswath's model inputs err in several ways from our perspective.
- They take the reporting of DB at face value. After wading through the notes in the financial statements, that does seem like a good idea. They need to be forensically scrubbed!
- The assume the issues that have received a lot of media attention are the only issues that endanger DB. Again, that doesn't seem like a value assumption. Reference the raising capital video below.
- The coming dearth of affordable capital is also not being adequately addressed.
DB's capital situation is not as rosy as Mr. El Arian is making it seem. All you, I or Mr. El-Arian has to do is read the balance sheet. Here, I'll do it for you - as excepted from page 5 of Derivative Risk Exposure of Major Banks to Deustche Bank:
Reference the video below...
The DOJ fine is but one in a cacophony of litigious sounds to be heard...
- My valuation of Deutsche Bank
- Global Banks - Data
- Google Shared Spreadsheet: Crowd Valuation of Deutsche Bank
Knowledge subscribers of any level can email me at reggie AT veritaseum.com to get a copy of Aswath's model with a few of my assumptions and comments in it. Feel free to leave your own comments as well.
Click here for our paid research on DB risks and click here for our more comprehensive EU Bank Crisis research - European Bank Contagion Assessment, Forensic Analysis & Valuation
More free links on the topic...
Here's What A Real, Live Veritaseum 5x Short DB Smart Contract Looks Like to Our Research Subscribers
If you haven't heard, we're giving out free, fully smart contracts as a 5% rebate to anyone who purchases any of our research packages above the introductory novice $50 level. This is not your Daddy's rebate! The rebate actually gets larger as DB goes down in price. For those who may be coming late to the party, we can offer a 5x long gold (or even a long gold, short DB) smart contract rebate as well. Of course, the bulk of our research targets banks and entities other than DB, but I thought we'd make DB the subject of the rebate to drive the point home. Below is an actual contract crafted off of the price of a single share of DB for about 2 weeks.
The research and knowledge subscription module "European Bank Contagion Assessment, Forensic Analysis & Valuation" contains a full report of a very large European Deutsche Bank counterparty that faces a full 27% downside from current levels. It appears as if no one suspects a clue. It also contains much, much more (including at least 3 to 5 suspect banks). We can break this apart a la carte, if requested.