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Berko: Deutsche Bank, GE and broker swapping

By Malcolm Berko

Published: January 6, 2019, 6:06am

Dear Mr. Berko: What do we do with 1,300 shares of General Electric, which we bought at $31? Our stockbroker says we should hold them. My wife says sell. And I don’t give a (nasty word) what we do.

That broker, whom we’ve had for 12 years, is leaving J.P. Morgan and going to another firm we’ve never heard of. He’ll be working out of his house. We have been very pleased with his service and advice, but the prospect of changing firms makes us nervous, and that he’ll be working out of his home office concerns my wife. Why would he do that? Do you think we should stay at J.P. Morgan or move with him? My wife says move, but I would prefer to stay because “better the devil you know than the devil you don’t.”

Also, please give us your thoughts on Deutsche Bank. If you think it has comeback potential, we will buy 3,000 shares in our joint account. We would sell the 800 shares of Synovus that we bought at $19 on your recommendation years ago. It’s now $38. It ran up to the mid-$50s this year, but I didn’t sell. I think it will stay at this price for a while, and I don’t think it has much upside remaining. So, do you think Deutsche Bank, which sold for over $60 a share eight years ago, has a good outlook?

— TW, Columbus, Ohio

Dear TW: You have to hold General Electric (GE-$7) — and hold your nose, too! I suggest that you buy 1,300 more shares today and then tomorrow sell the 1,300 shares you bought at $31. Take the $31,200 loss but still own the stock. GE has more moving parts than many observers imagined, and some of them should have fantastic future value. The problem is that neither I nor others who watch GE have an idea of how long it will take for that value to manifest itself.

If truth be told, the 200-year-old and prestigious J.P. Morgan isn’t any better at managing your portfolio than Oppenheimer, UBS, Starsky & Hutch, Baird or Mary Poppins would be. The difference is the broker you employ to give you advice. The brokerage firm is just the vehicle that transacts your order. Think of it like this. It will take you 12 minutes to safely drive 4 miles to the grocery in a Ford or 12 minutes to drive there safely in a Cadillac. It’s the driver who makes the difference, not the car. And in your instance, it’s the broker, not the brokerage. Tell your wife that brokers who work from their home are usually older, established, successful brokers. They don’t need guidance, are trusted by their firm’s management and are usually proven talents. So, if your broker moves to Kokomo, Kalamazoo or Kankakee, go with this guy. As you wrote, better the devil you know than the devil you don’t.

When fiscal 2017 ended, Deutsche Bank — the largest of Germany’s 1,700 banks, with $1.8 trillion in assets, and the 15th-largest on the globe — had lost $9 billion in its previous three years of operations. Think “derivatives.” At the close of 2017, this $25 billion-revenue bank with 2,400 branches in 60 countries conducted 70 percent of its business overseas. Deutsche Bank (DB-$8.10) is still in big trouble and has had to raise over $8 billion in the past eight years to cover holes in its balance sheet. An American analyst I know who lives in Germany recently told me that investments made years ago are still costing DB between $600 million and $800 million a year.

Other investments (derivatives) are straining DB’s capital structure and may continue to do so for another decade. These losses stem from a $60 billion derivative screw-up that management is reluctant to bring out in the open.

This may eventually devolve into a world-class financial scandal and is going to take years to clean up.

Don’t buy DB.

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