A difficult week for Deutsche Bank became even more awkward yesterday with the news that one of its former analysts knowingly misled investors about the real worth of a company’s shares.
The Securities and Exchange Commission (SEC) fined Charles P. Grom, dismissed from Deutsche Bank in 2013, the sum of $100,000 for his recommendation to buy shares of the retailer Big Lots, despite the analyst’s negative view of the company’s stock. Speaking in the New York Times Wednesday, Andrew J. Ceresney , the SEC’s director of enforcement said “When research analysts tell clients to buy or sell a particular security, the rules require them to actually mean what they say. Analysts simply cannot express one view publicly and the opposite view privately.”
Analyst conflict issues have been under the regulators’ radar for several years now and although Deutsche Bank is not the only investment bank to be warned about its conduct, Wednesday’s ruling comes at a time when the bank seems increasingly unsettled. As the Financial Times remarked, “the fine comes amid a gradual but steady fall in the proportion of “sell” recommendations from investment banks’ research departments, which some commentators attribute to structural pressures within the industry.”
On Monday of this week the credit ratings agency Moody’s confirmed its view that Deutsche Bank will be able to make payments on its debt, at least until the end of 2017, although the agency analyst Peter Nersby added the caveat that the bank’s ability to pay does “appear secure, barring a major, unforeseen event.”
According to sources within the beleaguered bank, however, a policy change at the U.S. Federal Reserve would be the best means of restoring global confidence. Representing a team of Deutsche Bank equity analysts, Sebastian Raedler said Monday “To avoid a further rise in U.S. defaults, we will likely need to see a Fed relent, leading to a sustainable drop in the dollar, higher oil prices and reduced energy balance sheet stress.”
As to the impact of the banking crisis on the wider U.S. and global economy, a leading observer argues that the U.S. economy is not currently in the doldrums. David Absolon, Investment Director at Heartwood Investment Management, argued on Monday “’the Fed is walking a tightrope between being seen to show confidence in the U.S. economy and at the same time acting to navigate against difficult global headwinds,” while adding “the U.S. economy, while anemic, continues to expand.”