FRANKFURT • Years of losses and strategic drift have cost Deutsche Bank AG a seat among Europe’s elite companies.
Germany’s largest lender has dropped out of the Euro Stoxx 50 Index for the first time since its inception in 1998, according to documents seen by Bloomberg.
The index, compiled by Deutsche Boerse AG, provides a cross-section of the biggest and most liquid stocks in the euro-area.
A loss of confidence in the lender’s ability to restore profitability after a string of scandals and fines has caused a sharp decline in Deutsche Bank’s market value.
It has lost money for the last three years, and a growing number of analysts are voicing doubts about CEO Christian Sewing’s latest turnaround plan. Deutsche Bank’s shares peaked in 2007 and have lost some 90% since then.
They are down over 37% this year alone, but were up 0.7% by 11.00am in Frankfurt yesterday.
Inclusion in widely-tracked indexes is becoming more important for companies in a world increasingly dominated by ‘‘passive’’ investment funds.
Such funds accounted for 30% of all Europe-focused equity investment funds at the end of 2017, according to the Bank for International Settlements.
The Euro Stoxx 50 alone is tracked by exchange-traded funds with assets of more than €40 billion (RM191.6 billion), data compiled by Bloomberg show.
Expulsion from the index will force passive investors to sell as they realign portfolios to include the index’s new constituents.
Stocks dropping out of a benchmark index on average have underperformed the respective gauge by 5.6% during the month before the announcement and another 3% between the announcement and the actual index change, data collected by LBBW analyst Uwe Streich show. Streich said the main problem for the bank is “reputational”.
“Exiting the Euro Stoxx 50 seems to contradict the bank’s self-image as one of the eurozone’s biggest banks,” he said. “Re-entry will be very difficult.” The index change is set to take effect on Sept 24.
In a statement that didn’t directly acknowledge its exclusion, Deutsche Bank said: “Management is firmly commit ted to execut ing its announced strategy to improve our bank’s profitability.
“We expect that this will support the valuation of Deutsche Bank by the market, and therefore increase market capitalisation.”
The bank said its commitment and strategy are “unaffected by the announcement of the index provider”. A Deutsche Boerse spokesman couldn’t immediately comment.
Germany’s second-largest listed lender, Commerzbank AG, risks suffering a similar fate by falling out of the DAX Index, which includes the country’s largest and most liquid stocks.
Deutsche Boerse is slated to announce the new composition of the DAX today after the market’s close.
The two potential index exits “tell the story of how far behind the curve German banks are”, Andreas Meyer, a portfolio manager at Hamburg- based Aramea Asset Management AG, told Bloomberg in August.
“While other European banks keep growing, Germany’s banks are occupied with themselves, unaware of how the competition is attacking them on their home turf.”