Goldman Sachs sees some hope for Deutsche Bank, which has been slapped with a potential US$14bn bill for its part in the mortgage-backed securities scandal that precipitated the 2008 financial crisis.
The share price has been under immense pressure ever since the US Department of Justice made its initial settlement offer.
However Goldman said past experience suggests Deutsche’s liabilities will be a lot smaller than the market is currently anticipating.
That headline figure is likely to decline as the negotiations progress, it added.
It points to the Morgan Stanley and Citi’s settlements, which it says were US$3.8bn and US$7bn respectively, as being more representative.
While hardly putting its neck on the block, Goldman said Deutsche will have to pay out anywhere between US$2.8bn and US$8.1bn as part of the DoJ censure.
The problem for Deutsche is two-fold, according to the Wall Street investment bank.
First, it is “thinly capitalised” and, second, it doesn’t have a “meaningful” high-return on platform from which to grow the business.
It rates Deutsche Bank’s shares ‘neutral’ with a with a 12-month target price of €14.20. The current share price is hovering just under €11.
It is expected to be the precursor to other deals related to its part selling toxic mortgage-backed securities.
Research from Berenberg suggests RBS is in a much better position to pay a DoJ penalty.
“While the bank does face material macro-driven headwinds, it does so from a position of relative strength,” it told clients in a note.
“In our view, RBS has a strong core business, a focus on cutting costs and, due to substantial de-risking, one of the safest loan books of any UK bank.”