European Investment Banking: Europe and Investment Banking Are a Bad Match - by Leonid Bershidsky

Deutsche Bank is undercapitalized and may be facing "insurmountable headwinds," James Chappell, an analyst with the private bank Berenberg, wrote in a recent note. He's not just down on Europe's biggest investment bank, which he thinks should trade at 9 euros ($10.2) per share rather than the current 14.7 euros -- he's irritated with the entire sector, which is dying out in Europe and is still disproportionally powerful in the U.S.

Just a decade ago, Chapell's chief gripe with investment banking -- that it's not very profitable -- would have made no sense. Now, the Berenberg analyst describes it as "an industry in structural decline":

Each weak quarter is seemingly greeted with an excuse that it could have been better if not for the wrong type of volatility, client uncertainty or central bank intervention. Q1 2016 saw the absence of one-off profitable events that have protected revenues in the past. We have perhaps had the first glimpse of what core profitability in the investment banking industry really is (ROEs in the mid-single digits at best) and it could be even worse if the traditional seasonality occurs.

Deutsche Bank, which Berenberg says is more than 40 times levered, in need of fresh capital and at the same time unable to offer a decent return on it, has become a symbol of Europe's failed investment banking ambitions. Before the 2008 financial crisis, European banks sought a foothold on Wall Street, where Deutsche, Barclays and Credit Suisse cracked the "bulge bracket" banking elite to rank alongside the likes of Goldman Sachs, JP Morgan and Morgan Stanley. Now they're losing out to U.S. giants even on their home turf, according to Bruegel, a Brussels-based research institute:

Read more Europe and Investment Banking Are a Bad Match - Bloomberg View