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Deutsche Bank earnings warning spooks markets

Deutsche Bank AG's share price plunged to its lowest level since November 2016 after CFO James von Moltke warned investors that revenues in the German banking group's key corporate and investment banking unit will incur a €450 million negative effect in the first quarter from the strong euro and higher refinancing costs.

The German group opened March 21 trading at €12.75 on the Frankfurt Stock Exchange, before plummeting to an intraday low of €11.78. The shares closed the day at €12.01, down 5.15% compared to the previous day. The last time Deutsche Bank's share price closed below that was Nov. 9, 2016, when it ended the day at €11.92.

The CIB unit, which accounts for roughly half of Deutsche Bank's revenues, has been the main drag on the group's overall recovery and has raised doubts over the success of the lender's 2020 restructuring plan.

Deutsche Bank reports in euros, but 40% of its CIB earnings are either dollar-denominated or linked to that currency, Von Moltke told attendees at the Morgan Stanley European Financials Conference on March 21. The euro, which has risen roughly 3% against the U.S. dollar since the start of the year, will account for some €300 million of the expected negative effect in the CIB unit, while the remaining €150 million will be due to higher refinancing costs, the CFO said.

Lower IPO valuation

Deutsche Bank also adjusted the issue price range for the partial initial public offering of its DWS asset management unit to between €32 and €33 per share from between €30 and €36 per share. This puts the total valuation of DWS in the range of €6.4 billion to €6.6 billion. A 25% stake listing will therefore fetch up to €1.65 billion for Deutsche Bank, which is below its original goal to raise around €2 billion with the unit's IPO.

Although the price range is narrower now, the midpoint is only €500 million lower than the initial range, Neil Smith, equity analyst with Bankhaus Lampe, pointed out.

"The IPO is further evidence that [Deutsche Bank's] strategy is being executed to plan," he said in an email.

Meanwhile, New York-based Creative Global Investments sees Deutsche Bank's share price reaching €18 within 12 months, CEO Carlo Besenius said in an email.

"We think that investors are increasingly going to become more confident in Deutsche Bank's management and their abilities to redirect the bank towards more profitable and more long-term sustainable business areas," he wrote. "[Deutsche Bank] has a plethora of businesses, which are undervalued in the sum of the parts, and this could just be the beginning for [CEO] John Cryan and management to spin some of them off in the coming years, and create shareholder value."

Article amended at 10:00 p.m. London time on March 21, 2018, to correct reference to historic share price in November 2016.