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In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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Does Money Laundering Pay at Deutsche Bank?

Value investors with lousy ethics and a strong stomach can invest in money laundering at Deutsche Bank AG (NYSE: DB).

Recent money-laundering against Deutsche Bank (DB) include:

  • Shady dealings with alleged sexual predator Jeffrey Epstein and failing to monitor the activity of foreign clients. The New York State Department of Financial Services fined Deutsche Bank $150 million over those allegations in July, the Organized Crime and Corruption Reporting Project (OCCRP) reports.
  • “During the eight-year period between 2007 and 2015, Deutsche Bank cleared more than $267 billion in 1,638,844 transactions for Danske Estonia. Out of this total, Danske transferred at least $150 billion in payments from Russia and other former Soviet states through Deutsche Bank,” a New York State Department of Financial Services consent order claims.
  • Deutsche Bank was part of a massive money-laundering scheme called the Global Laundromat, The Guardian alleges. The Guardian claims the Global Laundromat launder up to $80 billion for Russian criminals between 2010 and 2014.
  • Deutsche Bank helped fraudsters, terrorists, drug cartels, and gangsters launder $10 billion into clean cash, BuzzFeed News alleges. The funds laundered included hundreds of thousands of dollars fraudsters stole from 141 small businesses in Southern California. Deutsche Bank’s clients included a company that US authorities suspect of being a front for the Russian Mafia.
  • Deutsche Bank’s fraud and money laundering was so great that Bank of America (NYSE: BAC); hardly a bastion of ethical behavior filed a Suspicious Activity Report (SAR) about some of its transactions, BuzzFeed News claims.
  • Between March 2013 and April 2014, the Khanani money laundering organization moved $50 million in dirty money through Deutsche Bank, BuzzFeed News alleges. Khanani’s alleged clients include the Taliban, Hezbollah, and Mexican drug cartels.

Invest in Money Laundering at Deutsche Bank

Value investors, however, could see Deutsche Bank (NYSE: DB) as a bargain because Mr. Market paid $8.52 for its shares on 2 October 2020.

Additionally, Deutsche Bank’s shares are stable. Deutsche Bank began 2020 at $8.33 a share and hit a high of $11.04 on 14 February 2020. However, Deutsche Bank’s shares fell to $5.48 on 16 March 2020.

Moreover, Deutsche Bank (DB) paid an annual dividend of 12.3₵ on 28 May 2019. credited Deutsche Bank with a 1.53% dividend yield on 30 September 2020.

Is Deutsche Bank making money from money laundering?

Deutsche Bank AG (DB) is a cheap dividend stock that makes some money.

For instance, Deutsche Bank reported an operating income of $371.07 million and a gross profit of $6.983 billion on 30 June 2020. Additionally, Deutsche Bank’s gross profit rose from $6.972 billion on 30 June 2019.

Dramatically, Deutsche Bank’s operating income fell from $1.065 billion on 30 June 2019 to $371.07 million on 30 June 2020. Meanwhile, Deutsche Bank’s common net income fell from $430.53 million on 30 June 2019 to $56.16 million on 30 June 2020.

Deutsche Bank’s Revenues Shrink

I think Deutsche Bank’s revenues show money laundering is a poor business model.

In fact, Deutsche Bank’s revenues have shrunk dramatically over the past year. Deutsche Bank (DB) reported revenues of $10.54 billion on 30 June 2019. The revenues fell to $8.553 billion on 30 June 2020.

Notably, Stockrow estimates Deutsche Bank’s revenue growth shrank by 27.11% in the period ending on 30 June 2020. Deutsche Bank’s revenues shrank by 4.42% in the period ending on 30 September 2019.

Thus, it appears coronavirus and scandals are affecting Deutsche Bank’s revenues.

How Cash Does Deutsche Bank Generate?

Deutsche Bank (NYSE: DB) can generate enormous amounts of cash. For instance, Deutsche Bank reported an operating cash flow of $26.662 billion on 30 June 2020.

In addition, Deutsche Bank reported an investing cash flow of $6.158 billion and an ending cash flow of $173.509 billion on 30 June 2020. Deutsche Bank’s ending cash flow grew slightly from $172.157 billion on 30 June 2020.

Deutsche Bank’s cash and short-term investments fell dramatically over the past year. Deutsche Bank had $952.709 billion in cash and short-term investments on 30 September 2019. That number fell to $382.177 billion on 30 June 2020.

Plus, Deutsche Bank had $1.549 trillion in total assets on 30 June 2020. That number fell from $1.669 trillion on 30 September 2019.

I consider Deutsche Bank a shrinking company in a shrinking industry. I think political pressure could kill or discourage the kind of international banking Deutsche Bank performs. However, I think there is still a strong demand for that type of banking.

What is Deutsche Bank?

Deutsche Bank AG (NYSE: DB) is a historic German investment bank that has operated in the United States since 1873.

Deutsche Bank was the first German bank listed on the New York Stock Exchange (NYSE) in 2001. Interestingly, Deutsche Bank claims to be the only investment bank with a physical presence on Wall Street. Deutsche Bank’s US headquarters are at 60 Wall Street in Manhattan.

Deutsche Bank operates in 58 countries and is one of the largest banks in Germany. Deutsche Bank’s International Private Bank is the leading private bank in Germany and one of the leading private banks in the Eurozone.

The Deutsche Bank Private International Bank claims to serve five million clients from 1,200 branches in Europe and Asia. It also claims to serve 3.4 million clients in Italy, Spain, Belgium and India. The Private International Bank claims to have assets of €250 billion and generate €3 billion in annual revenues.

Deutsche Bank’s Growing Business

The International Private Bank serves high-net worth individuals, businesses, and wealthy families. High-net worth individuals are a growing market.

Statista estimates there were 5.22 million high-net-worth individuals in Europe in 2019, 6.3 million high-net-worth individuals in North America, and 6.53 million in the Asia-Pacific Region in 2019. Those numbers rose from 4.5 million in Europe, 5.15 million in North America, and 5.51 million in the Asia-Pacific Region in 2016.

Thus, Deutsche Bank has a cash-generating business for which there is a growing demand. However, I think the legal, ethical, and political problems the money laundering allegations make Deutsche Bank a risky investment. I advise ordinary investors to stay away from Deutsche Bank until it cleans up its act.

Until then, there are other and safer international banks out there, including Buffett’s favorite BNY Mellon (NYSE: BK).

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