Deutsche Bank share price has jumped but a risky pattern has formed

Deutsche Bank (ETR: DBK) share price has done modestly well in the past few months as investors have cheered its turnaround story. The stock has jumped by more than 8% in the past 12 months, outperforming the Nasdaq European Bank Index, which is up by about 4% in the same period. It has jumped by over 180% from its lowest point in 2020.

Turnaround strategy is working

Deutsche Bank has been a great turnaround story as it has continued to grow its operations and become more profitable in the past few years. In a change of events, a company that many expected to go burst has become one of the top performers.

For starters, Deutsche Bank saw its financial reserves dwindle a while ago, pushing the then management to raise over 30 billion euros to save the company. The German government also intervened to prevent it from collapsing.

It had to raise these funds because of the huge fines it incurred from American and European regulators. Also, the company made substantial losses from its Wall Street operations, including a trader who was sentenced to prison for manipulating the metals market through spoofing.

Recently, however, under Christian Sewing, the bank has changed its business in a way that investors love. It has reduced its Wall Street ambitions in which it sought to compete with the likes of JPMorgan and Goldman Sachs. 

The company has also shed thousands of jobs as it seeks to reduce its cost-to-income ratio from 110% in 2019 to 60% in 2025. It has also been lucky by avoiding some errors that cost other banks like Credit Suissie and Nomura billions of dollars. It was not involved in the Archegos Capital and Greensill scandals. 

Deutsche Bank is becoming highly profitable

Most importantly, its investment banking division is relatively small these days, meaning that it has not been affected by a deals drought that has affected the likes of Barclays. Instead, the company has focused on simple banking and forex operations that generate stable revenues and profits.

The most recent results demonstrated how profitable it has become. Its profit before tax jumped to 5.3 billion euros in 2023 as its revenue jumped to 28.9 billion euros. Its net inflows in the private bank and asset management soared to 57 billion euros. This makes it one of the most profitable banks in Europe. 

Most importantly, patient investors have been rewarded. The company announced that it plans to increase its share repurchases and dividends by at least 50% this year.

Deutsche Bank is still extremely cheap as it trades at a price-to-book ratio of 0.39. In comparison, JP Morgan has a ratio of 1.75 while BNP Paribas, Citigroup, and Unicredit have a ratio of 0.50, 0.57, and 0.85, respectively. 

Deutsche Bank price-to-book ratio

This valuation is likely because the company is exposed to the commercial real estate in the US which is slowing at a fast pace. Also, there are risks about Germany, which has moved into a recession, making it the slowest economy in the G7.

Deutsche Bank share price forecast

Deutsche Bank stock chart by TradingView

The biggest risk that the Deutsche Bank faces is from a technical perspective. As shown above, the stock formed a double-top pattern at 12.86 euros. In most periods, this is one of the most bearish signs in the market. It remains slightly above the neckline of the double-top pattern at 11.60.

Therefore, because of this pattern, there is a likelihood that the shares will continue falling in the coming weeks. If this happens, the most likely scenario is that it moves from 12 euros to about 10 euros in the coming months. A bullish move above the double-top pattern at 12.86 will invalidate the bearish view.