In a new report by Morgan Stanley, analysts pitted investment banking giants Goldman Sachs Group Inc GS 1.43% and Deutsche Bank AG (USA) DB 2.77% head-to-head, comparing several different aspects of the banks’ businesses. Here’s a breakdown of how the competition turned out.
Book Value Creation
In a direct comparison of book value creation rates, Goldman’s 10-year compound annual growth rate (CAGR) rate of 14 percent blows Deutsche Bank’s 4 percent CAGR out of the water.
The comparison doesn’t get much better for Deutsche Bank in the short-term. Since 2007 Goldman’s 10 percent CAGR in book value of 10 percent is 10 times higher than Deutsche Bank’s rate.
Winner: Goldman
Return On Risk-Weighted Assets (RWA)
Analysts point out that Goldman and Deutsche Bank share similar return on RWA numbers, but that Goldman has a much better return on leverage exposure.
Analysts also like that Goldman has taken steps in recent years to reduce total leverage without negatively impacting client revenues.
Winner: Goldman
Cost Of Non-Core Assets
Analysts looked at the future cost of selling off non-core assets at the two banks. At Goldman, analysts see non-core asset sales having a “deminimis” impact on the bank’s bottom line.
However, analysts believe that Deutsche Bank will have the highest cost of any European banks in Morgan Stanley’s coverage universe (including Lloyds Banking Group, The Royal Bank of Scotland Group, Barclays and UBS Group AG) when divesting non-core assets.
Winner: Goldman
Valuation
Finally, analysts looked at the valuation of the stocks of the two banks by assessing a chart of price to net asset value (P/TNAV) and estimated 2017 return on tangible equity (ROTE).
In this comparison, Deutsche Bank comes out on top, as it currently trades at a 25 percent valuation discount to Goldman. However, analysts note that Goldman’s recently-released 1Q15 ROTE number of 14.7 percent came in way ahead of expectations, suggesting that Morgan Stanley’s 2017 projected ROTE of around 11.5 could be on the low side.
Winner: Deutsche Bank
A Champion Declared
Goldman came out on top in three of the four categories and walks home the winner of the investment banking battle. Analysts recommend traders consider any strength in Deutsche Bank’s stock following its Q1 earnings report as an opportunity to take profits.
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