THE HAUSBANK THAT CAME IN FROM THE COLD (DB) – QAV America #51

QAV AM 51

Cameron: Welcome back to QAV America, Tony, episode 51. We’re recording this on the 5th of May, 2021. No, 2026. Uh, I

Tony Kynaston: In a bit of a time warp there aren’t you?

Cameron: Good, good, di Good. Good time to be a value investor. 2021.

Tony Kynaston: As is. As is 26.

Cameron: Yes. As is 26. Well, now that you mention it, let me just talk about how our portfolios and stocks and whatever are doing, um, the, uh, Pulled Porks that we’ve done over the last couple of months. Some of them are doing great, some of them not so well. Um, PAG, Seguro Digital PAGs is down eight or 9% since we covered it. And in fact. I added it to the light portfolio and it’s become a three point sell today. I just noticed, but. Commercial vehicle group is up 20% since we talked about it on the 6th of April. Pitney Bowes, [00:01:00] PBI is up 40% since we talked about it on the 30th of March. Eastman Kodak is up 81% since we talked about it on the 23rd of March. Geo Park 11% since the 17th of March. Murphy Oil is up 22% since the week before that. Neighbor Industries is up 33% the week before that. Bread Financial is up 18% since the 28th of February. Things are just going bonkers. Uh, Tony, and of course, none of these are even remotely AI related stocks. Universal electronics that I added to the light portfolio last week after we put the kibosh on MRP, it’s up 5%. Since I added it and can’t even remember what it does, um, not

Tony Kynaston: No. Me neither.

Cameron: week. But, uh, well, I didn’t talk to you about it. You wouldn’t know. We didn’t do it in the show, but it’s,

Tony Kynaston: Oh, okay.

Cameron: a great week. The US dummy portfolio though, Tony, which, uh, as you know, has been running since September, 2023, [00:02:00] currently up 110%. Time weighted return over that period of time versus the S&P 500, up 62%. So, uh, not quite double, but pretty damn close to double market over that period of time. The QAV light portfolio that I started a week before Christmas, uh, well a few days before Christmas, actually.

December, 2025. Is currently up 11% versus the S&P 500, up 4.6899999999999995%. So that is doing double market even though it’s only over, say, four months or so. Um, yeah, so the US market, as we know, absolutely going bonkers at the moment despite bite. The what’s going on in the US economy and the global economy.

We read some articles out on our Australian show people talking about the fact that it’s the AI stocks. Oh, by the way, the RBA did lift interest rates for the third time this year. Tony, I just saw it on the [00:03:00] Financial Review

Tony Kynaston: So we can make out on our, on our prediction market bets.

Cameron: Well, I, I was gonna bet the opposite, so I would’ve lost money.

You would’ve won. Congratulations on your Polymarket bet there. Betting against yourself before yourself. Um, we were talking about

Tony Kynaston: sorry, I was just gonna,

Cameron: Yeah.

Tony Kynaston: yeah, before you go leave the portfolio results, I mean, it’s, you talk about the S&P 500, but that includes the AI stocks. If you back those out,

Cameron: Yes.

Tony Kynaston: you know, we’re running way above the rest of the market. Um, but, but, but buying rest of the market stocks, so we’re really picking the eyes out of what’s left.

Cameron: And it’s like there’s just so many stocks turning up on my US buy list every week. And you know, we’re just picking the ones at the top and buying them. And most of them, vast majority of them, are just doing very, very well. Um. You know, in the last, since we started adding or doing, Pulled Porks on these every week deep dives in March of [00:04:00] last year, so a little over a year now, I’ve talked about 48 stocks on the show.

34 of those are positive since then, 14 and not, so it’s a 71% win ratio. the average profit across them in a year is 35%.

Tony Kynaston: Wow.

Cameron: So I mean, the outliers being Zep Health, which is up 500%, Sasol ISS up 178%. Chemex is up 110. Couple of losers Cowain Foods is down 21. I think it’s the worst. I know. Controladora. Um, the Latin American airline, VLRS is down 23%, but, uh, nearly everything else is doing very, very well. American Airlines is down 14%. I see that the, uh, United merger is definitely off the table there this week. Speaking of airlines. Spirit Airlines has shut down the collapse of the carrier following a doubling in [00:05:00] jet fuel prices during the two month old Iran War will cost thousands of jobs. Um, no US carrier of Spirit’s size.

It accounted for 5% of US flights at one point, has liquidated in two decades.

Tony Kynaston: Wow.

Cameron: So congratulations to Donald Trump. I do believe the reason he started. The, uh, war with Iran. It was, uh, because he thought there were too many airlines in the United States. Uh, it’s five D chess, Tony, this is how he plays five D chess.

He’s like, how do I get rid of one of these, uh, discount budget airlines thousands of jobs? I know I’ll start a war with Iran on.

Tony Kynaston: Well, I don’t think Donald would’ve been a frequent fly with Spirit Airlines, so he’s not, he’s not concerned.

Cameron: to fly. They

Tony Kynaston: He’s not concerned.

Cameron: you’re saying? No, it had to pay for three seats instead of the one. Well, but is that like, uh, a sign of things to come? I mean, I know that they were [00:06:00] already doing it a little bit tough, I think before all of this happened, but, uh, that was the death nail for them, the doubling in jet fuel

Tony Kynaston: Yeah.

Cameron: But I wonder if they’re the canary in the coal mine in terms of the US economy.

Tony Kynaston: Well, potentially, I mean, uh. Jet fuel has gone up a lot, and they were a low cost operator, so they didn’t have a big margin to, to buffer it with. Um, but you know, you wonder about other airlines. Airlines are pretty good at hedging their costs, but hedges do come with a time constraints. So, you know, as the war goes on for, as a two week war goes on for its ninth week, uh, it’s, you know, you wonder when the.

Hedging might start to unwind and it might affect other people. Yeah. It’s a shame.

Cameron: Well, speaking of affecting other people, Spirit had 4,119 domestic flights scheduled between May one and May 15th, offering [00:07:00] 809,638 seats. All of those people obviously have lost their flights. I believe some of the other airlines are offering them deals to help out, which is nice of them. But I’m not sure how much are gonna get back in terms of refunds,

Tony Kynaston: Yeah.

Cameron: uh, for all of these flights.

Like the, uh, tariffs that Americans have been paying for the last year, which they’re probably not going to get. Uh, apparently the Trump administration had been offering $500 million in financing in exchange for warrants equivalent to 90% of Spirit’s equity. There had been disagreements inside the Trump administration over whether and how to fund the bailout.

The Wall Street Journal reported, but it didn’t help at the end of the day for some reason. It, uh, fell through, but interesting this, these moves by the Trump administration, as we saw by the Obama administration. After the global financial [00:08:00] crisis of intervening directly in

Tony Kynaston: Yep. Yep.

Cameron: corporate socialism will come and will, uh, you out.

Tony Kynaston: Yeah, well, I mean it sometimes it can be, um, just a zero sum game if we, the government works out how much it has to pay in welfare for the employees who aren’t gonna be there. And, and the knock on effects for people who, uh, are in that industry might be cheaper to bail the company out, especially if it’s a short term problem, if they expect, you know, ’cause it’s, like I said, the ninth week of a two week war, they expect jet fuel to prices to drop.

Uh, maybe it is worth bailing it out, but they looked at it and it didn’t happen.

Cameron: I told you, I’ve told you before about my, my, my Iranian friend, uh, who I go to kung fu with, we talk Iranian politics all the time. And, uh, you know, a few days before the war, said to him, he was all for it. He wanted it to. He wanted it to happen ’cause he hates the regime and he wants the regime to go and he wants to [00:09:00] take the leadership of the country.

And before the war, I said, how many? How long do you think it’ll last? He goes, two days, three days, tops. And after the first week, I said, how long now? He goes, two weeks. Two weeks tops. It’ll all be over. after the end of the first month, I said, how long? He goes, two to three months. Two to three months.

That’s it. As soon as Trump puts boots on the ground. I know we about two months in when, when’s he putting boots on the ground? Any day now. Any day now. Boots on the ground. Yeah. Well there were tons of earnings announcements this week in the

Tony Kynaston: Yeah.

Cameron: Tony. Uh, absolutely tons. I didn’t have, we don’t have time to talk about all of them ’cause I want to get into my deep dive of the week.

But one I will mention Ford. Ford beat their Q1 profit estimates and lifts guidance, but shares tumble. It’s like a NZ

Tony Kynaston: Yeah.

Cameron: bank that you just talked

Tony Kynaston: Yeah.

Cameron: But um, I remember when we talked about Ford. Back, [00:10:00] uh, when did we do the Ford show? Let me see. Uh, may of last year, almost a year ago, people were saying, uh, when I mentioned it on the value investing subreddit, that Ford was a dog and had lots of problems and huge amounts of debt, et cetera, et cetera, et cetera. But they managed to do good numbers. Tony,

Tony Kynaston: Yeah.

Cameron: all of that, yeah.

Tony Kynaston: And I think they even banked some tariffs, tariff refunds as well, which helped. Yeah.

Cameron: nice. But the company’s share slid around 3% in pre-market trading, as investors may have anticipated a strong outlook hike, so it was sort of baked into the price. Automaker posted, adjusted earnings per share of 66 cents significantly surpassing the analyst consensus of 19 cents. Wow. Beat it by over three times. Revenue reached [00:11:00] 43.3 billion, up 6% year on year and slightly above the 42.96 billion estimate. The results included a 1.3 billion one time IEPA tariff benefit reflecting amounts Ford paid between March, 2025 and February, 2026. Uh, so we, we added them to our portfolio back when they were $10 80. $11 50 at the moment, so they’re up six point a half percent in the course of a year. All things being told. Not one of the better performing stocks that we’ve talked about, but, uh, not a huge disaster

Tony Kynaston: No, and you know, a large, you know, company, it’s been around for a long time. I’m kind of hedging around using the word blue chip, but it’s a, it’s probably is a blue chip company really.

Cameron: yeah. Well, um. Last week we talked about a company [00:12:00] that you didn’t like MRP. You put the kibosh on it. It was a shadow. Shadow banking land banker.

Tony Kynaston: I didn’t like its operating cash flow

Cameron: Yeah. We’ve,

Tony Kynaston: Yeah.

Cameron: well, this

Tony Kynaston: is it? Double in price over the week.

Cameron: I haven’t actually looked to see what’s happened with MRP in the last week. Let me see. MRP, uh, last week. Um, no, it’s plummeted. Tony, you put the kibosh on it. It was $30 87, now it’s $29, 55, so there you go. Gone down a whole buck almost this week though, Tony, I’m talking about DB Deutsche Bank.

Tony Kynaston: Oh, not decibels.

Cameron: No, but I’m gonna yell, so hopefully the DB will go up when I do it.

Tony Kynaston: Does have a colorful career.

Cameron: hit. Oh, man. Well, look, I, I learned a lot actually from doing this, um, [00:13:00] stock, uh, which I’m, there’s some really interesting bits and pieces that I’m looking forward to getting into. Gotta do it quickly though, ’cause I’m going to see the new Mortal Kombat film in half an hour, so

Tony Kynaston: I di didn’t know you were a Karl Urban fan.

Cameron: I am a big Urban fan and a big look. I’ve been playing Mortal Kombat since. The early nineties, I remember, you know, uh, when I had a job, uh, in banking in Melbourne in the early nineties, every afternoon after I finished work in Russell Street, going to a little cafe around the corner, a little gaming actually like

Tony Kynaston: Oh, really?

Cameron: arcade.

And they

Tony Kynaston: you played the Rackers.

Cameron: Mortal

Tony Kynaston: Yeah,

Cameron: and very, very early Mortal Kombat. I’ve been playing. Um. Uh uh, not Scorpion. What’s his name? The freezing guy. I should

Tony Kynaston: don’t ask me. I don’t play computer games.

Cameron: Oh man, God. Sub-Zero. Sub-Zero. Since I [00:14:00] was 22 and now I’m 55. So long time me and Sub-Zero go way back. Anyway, um, a lot of interesting stuff about this now, really my impression of Deutsche Bank before I did this was scandal of the week.

Tony Kynaston: Okay. Yep.

Cameron: Every time I think of Deutsche Bank, it’s just been scandals, connections with Trump. Jeffrey Epstein, money laundering, uh, the LIBOR scandal. The Malaysian one 1MDB fund, US sanctions violations. The Panama Papers, I remember I did a lot of shows on that when they came out. Deutsche Bank was all over that German police seemed to raid their head office every couple of years, and there’s billions and billions in fines that they’ve paid. But it turns out,

Tony Kynaston: Oh, not just that though. Go back further. Go back to the, you know, they funded Auschwitz, they, uh, turfed all the Jews outta the bank during the 1930s. Yeah, it’s a,

Cameron: times. Good times. [00:15:00] Well, they go back, I’ll get into their little bit of their history in a minute. Um, turns out 2025 was their best year ever in 156 years. Not many companies can say they’ve had their best year in 156 years,

Tony Kynaston: No. True.

Cameron: but Deutsche Bank is one of those, and. it turns out that they’re like one of the stocks that we have covered here so many times, particularly in the American show. Um, old, old businesses that are in the middle of a turnaround.

Tony Kynaston: Yep.

Cameron: Deutsche Bank. Surprisingly,

Tony Kynaston: Right,

Cameron: uh, this year, 9.7 euro billion, billion Euro profit before tax up 84%. Net profits, 7.1 billion Euro basically doubled. So they had a good year in 2025. Um, and Jeffrey Epstein’s, uh, you know, not responsible for a lot of it.

Uh, so. [00:16:00] Oh, I’ve got a whole Jeffrey Epstein story could tell you. Do you know? Do you know? I, I gotta pause, you know?

Tony Kynaston: Do I know Jeffrey Epstein? No. Categorically not. No.

Cameron: Where you want his play? I don’t have time to tell you my Jeffrey Epstein story. I’ll have to wait. Um. Uh, before we get into it, they’re not an ADR that was the first thing I checked.

Tony Kynaston: Yeah.

Cameron: did run an ADR for a long time, but then they moved to a common stock, uh, 16 years ago or something like

Tony Kynaston: It’s a dual listing, isn’t it? Yeah.

Cameron: as a common stock. So they were founded in 1870 in Berlin right after Bismarck, or he was gonna unify Germany, but before he actually unified Germany.

So I think German unification didn’t happen until 1871. They were founded in 1870, but as part of Bismarck’s unification process. And they were set up explicitly to break the Anglo French dominance of trade finance in Europe and around the world at the [00:17:00] time. Picture Germany, 1870 Bismarck is gearing up to declare the German empire.

German industry is exploding. Chemical companies, steel mills, the whole thing

Tony Kynaston: Yep.

Cameron: the of, of Napoleon and Napoleon III and the Franco Prussian Wars and all this kinda stuff. But every time a German exporter. Sold goods overseas. The trade was financed through a British or French bank because they had basically in

Tony Kynaston: It’s, yeah. Bit hard to bank with them when you’re at war with them.

Cameron: Eh, yeah.

Tony Kynaston: Yeah.

Cameron: I mean, China and the US seemed to be coping okay, but still London was the center of the world financially at the time. The sterling was the trade currency. It was the, the, the US dollar of its day and German bills of exchange were supposedly pretty much unknown in international commerce.

[00:18:00] Generally disliked They, they attracted a higher rate of discount than English or French bills. So German manufacturers and, and, um, businesses were kind of getting screwed, left, right, and center. then their English competitors were in the same market, so they set up, uh, this new statute to create, uh, a German bank. The Prussian government granted them the banking license in 1870. And the whole point written into the founding statute was to promote and facilitate trade relations between Germany, other European countries and overseas markets, and their first offices, I love this, were in Shanghai and Yokohama

Tony Kynaston: Right.

Cameron: so they went straight to where they were doing business didn’t set up until London, till like 1873, 1874 or something like that.

Tony Kynaston: Well that would’ve been about the time that those countries were opening up to Western, um, traffic, I guess Western Enterprise.

Cameron: [00:19:00] yeah, I mean, China had been opened up by the Opium Wars, uh, in 1860, and Japan was on the verges of opening up as well. So German industry was going global and they described themselves still as the global Hausbank. which literally means house bank. It’s basically your principal banking relationship.

Um, if you’re a corporate, you do everything with them. Um, lending payments, trading advice, custody, the lot. That’s been their strategy since 1870, but they had a period over the last 20 years, 30 years, where they thought they could grow. And we’ve seen this story a lot of times before. People are going, you know what?

We’re leaving money on the table here. We should be in this business, that business, we should be leveraging our brand, our customer base, our et cetera, et cetera, et cetera. They. Decided being a dominant German bank, the dominant German bank wasn’t enough. They wanted to [00:20:00] be a global investment bank. They bought Bankers Trust in New York in 1998. I remember Bankers Trust from my days working for Citibank in the late eighties. Yeah, hired armies of bond traders and for 15 years they pretended they were Goldman and it all ended very badly. of the scandals I mentioned in my intro mostly tied up with that play

Tony Kynaston: Mm-hmm.

Cameron: in 2019. They eventually gave up in all of that.

They killed their global equities trading business.

Tony Kynaston: I don’t know if they killed it or the GFC killed it.

Cameron: Yeah.

Tony Kynaston: Yeah.

Cameron: They, whatever it got killed and they just shut it down. Sold the prime brokerage business to BNP Paribas, sacked like 18,000 people

Tony Kynaston: Hmm.

Cameron: a course of a number of years from the investment bank and have been refocusing ever since then on core business, uh, being the house [00:21:00] bank for European corporates wealth management for rich people. Their CEO the last, um, whatever years, nearly 10 years, a guy called Christian Sewing, S-E-W-I-N-G. Sewing. So he,

Tony Kynaston: Saving

Cameron: he in, he invented the savings account.

Tony Kynaston: and he saved the company. Yeah.

Cameron: Saving the company. Yeah. He’s been in the job since 2018 and his contract’s just been extended to 2029. Long time as the CEO, but he started at the bank in 1989 as an apprentice. He’s a lifer.

Tony Kynaston: Yeah. Right.

Cameron: in the Hausbank German kid who came up through back office, internal audit, retail banking, all the unglamorous bits and ended up running the joint, [00:22:00] not an MBA from Wharton with flashy ideas. Uh, he’s sort of an old school guy. So the 2019 reset part of his plan and their best year they’ve ever had in their history is his doing.

Tony Kynaston: Yep.

Cameron: He, he had a partner who, uh, a CFO who just left in March of this year. James von Moltke, this guy, he’s an American. Um, but interesting story. He, he’s the great grandson of the Prussian General Helmut von Moltke the younger who started a little thing called World War I.

Tony Kynaston: Oh,

Cameron: And, and they were both related to Helmut von Moltke the elder, who was a disciple of von Clausewitz,

Tony Kynaston: oh,

Cameron: basically modernized the Prussian army in the 1800s. Um, for people who, unlike Tony, [00:23:00] didn’t listen to my Napoleon series, and you should go listen to my Napoleon series with J. David Markham,

Tony Kynaston: that’s a very good series.

Cameron: friend. J. David Markham. Uh, von Clausewitz was a Prussian general who studied Napoleon’s campaigns, wrote a great book On Strategy, I think from memory, the English title of it. um, von Moltke the Elder, used those principles to modernize the Prussian army. And what the hell are you doing there, Tony? You’re

Tony Kynaston: Sorry, I just got a,

Cameron: banging the mic.

Tony Kynaston: I’m sorry. I just got a message saying my camera actually was about to run out, so I’m plugging it in.

Cameron: Oh yeah, you gotta plug it in. Yeah. This eats up the battery,

Tony Kynaston: Yeah.

Cameron: the new CFO Anyway, as Raja Akram came in from Morgan Stanley, where he was, the deputy CFO, he took over as the CFO in March. So their Q1 2026 report, which came out just uh, a week ago, was his first quarter as CFO, [00:24:00] and that had a record profit posted a record quarterly. Post-tax profit of 2.2 billion euro up 8% year on year. And, uh, the private bank division saw pre-tax profit jump 39% to 681 million Euro.

Tony Kynaston: Hmm.

Cameron: And it’s interesting because, you know, your new CFO usually kitchen sinks,

Tony Kynaston: Yep.

Cameron: everything takes all of the provisions they can to make things look as good. He didn’t do any of that, at least with his first quarter. Just basically gave it a clean record. I don’t think he had to, ’cause everything’s looking so good. So there was no, um, creative accounting with this, with this, as far as I could tell. He could still do it as time goes on, but, um, seeing as he, you know, I think the CEO’s got a plan. Von

Tony Kynaston: Yeah.

Cameron: Moltke, no von not von Moltke successor. Sewing and Akram, the new, the new team there have, um, got a plan that he’s sticking to.

Tony Kynaston: Well, before [00:25:00] you leave discussions about CEOs and CFOs, interesting, CEO. I think maybe before the well, uh. Anyway. Interesting. CEO about 10 years ago, uh, was Jain, who was the cousin of Ajit Jain, who runs the insurance business for Berkshire Hathaway.

Cameron: Wow.

Tony Kynaston: And uh, I saw a, I saw a quote when I was doing a bit of research on Deutsche Bank that Warren Buffett back in the year 2000, had a meeting with Ajit Jain.

May have just turned up to meet Buffett with his cousin, and Warren came away and said That boy’s gonna run an investment bank one of these days. About 10 years later, he was running, uh, Deutsche Bank.

Cameron: There you

Tony Kynaston: Hmm.

Cameron: And, uh, ran it into the ground and then they needed to fix it.

Tony Kynaston: I dunno about that.

Cameron: So, um. What they actually do four divisions [00:26:00] basically these days. The investment bank is the biggest piece, about 39% of group revenue bond underwriting, fx, corporate debt advisory. quietly killed their equities trading in 2019, so they’re no longer competing with Goldman on that stuff. 3.4 billion euro in revenue last quarter, 1.4 billion profit before tax. This is probably last quarter before this quarter, last quarter of the full year. I’m talking about here, the private bank. The German retail bank has branches in every German town past, plus something called Postbank, which I’ll talk about in a minute, in a minute. Something they took over from the postal service, which has been a little bit messy. they do wealth management for high net worth Europeans. profit is on that one, as I said, was up 39% year on year. They’ve got the corporate bank, cash management, trade finance, commercial lending, relationships, good returns on that. Asset management is the [00:27:00] fourth part of it. uh, they have a thing called DWS, which is separately listed, and Deutsche owns about 80% of that.

It’s got about 1.1 trillion euro in assets under management Q1, they delivered a 49.6 return on tangible equity in this division. Sounds insane,

Tony Kynaston: It does on a trillion dollars of investments. Wow.

Cameron: yeah.

Tony Kynaston: Or a trillion euros, I suppose. But yeah, same thing.

Cameron: So all four divisions hit about 13%, um, return on tangible equity in Q1. Uh, that was a big milestone for them. So it’s a bank. It’s, you know, it’s a, it’s, it’s, it’s pretty much a basic Doing well.

Tony Kynaston: covers the waterfront though, doesn’t it? Like it’s, it’s not a sa it’s not just a savings and loan bank. It’s not just an investment bank. It, it’s got Its

Cameron: bank,

Tony Kynaston: a house bank. Yes. It’s the German bank. They do everything. Yes.

Cameron: So the Postbank takeover, so as I [00:28:00] said, they acquired that from the German Postal Service in 2008, 2009, paid 25 Euro a share initially, then raised the offer and then got sued by long standing Postbank shareholders claiming the offer was still too low. dragged on for 15 years.

In April, 2024, German Appeals Court ruled against Deutsche Bank in a key case, forced a 1.3 billion Euro provision in Q2 of 2024, which was why the 2024 numbers didn’t look so good and the 2025 numbers a good year on year to some extent,

Tony Kynaston: Mm-hmm.

Cameron: they’ve started settling that. I think they’ve settled about 60% of the claims at 31 Euro a share.

Yeah. Um, but there’s still some more to pay off out of that, but I think it’s probably mostly settled these days. Um, good money for lawyers though, 15 years of fees fighting that. So they had a heyday. [00:29:00] Probably the biggest risk side of it that I could see, Tony, is their commercial real estate division.

They’ve got about 30 billion euro of high risk commercial real estate loans on the book. half. Just under half of that is office properties and a large. Component of that is on the US West coast, San Francisco, LA Seattle, which is the worst office market in the developed world right now. Apparently, apparently, um, people decided they were gonna work from home during COVID and haven’t gone back large extent.

They’re still well below pre COVID norms, office occupancy on the West Coast. And a lot of those loans are coming up for refinancing at much higher rates than they were written. This is the same problem apparently, that a lot of US regional banks have been facing. Uh.

Tony Kynaston: Yep.

Cameron: Deutsche is on top of it. They sold about a billion US dollars of US commercial real estate loans to outside investors in 2024. [00:30:00] And, you know, they’re handling it. That’s their job. Bloomberg ran a story in March. Deutsche Bank says commercial real estate remains key risk. You know, they, it could go badly,

Tony Kynaston: Yep.

Cameron: and the market might be factoring losses therein or some, some big hits to their profit. But that’s about it as far as I could tell.

Um, in terms of bad news stories, you know, they haven’t killed anyone recently. Um, well not since Jeffrey Epstein, but, um.

Tony Kynaston: And the, and the banker, um. There, there was a, a, uh, there was a banker who was allegedly involved in the Russian, um, because Deutsche Bank was the bank of the, the Trump family. And, uh,

Cameron: Yes.

Tony Kynaston: Mueller was investigating, um,

Cameron: Yes.

Tony Kynaston: Russian collusion, the Deutsche Bank banker killed himself in California. And people tried to tie those two things together and we still dunno whether they [00:31:00] should be or not, but it was an interesting timing.

Cameron: He shot himself twice in the back of the head while his hands were tied behind his back. It was really an amazing piece of

Tony Kynaston: Yeah. Ricocheting.

Cameron: Yeah. Um, look, uh, we, we are not claiming that they had any of those people, including Jeffrey Epstein, assassinated. That was comedy. Comedy gold. Comedy gold. But, um, as I said, uh, it, it’s very similar to some of the other stories that we’ve talked about in recent months.

Kodak, Pitney Bowes,

Tony Kynaston: Hmm.

Cameron: established

Tony Kynaston: Ford.

Cameron: um, too big for its boots in some areas. You know, got some things wrong, tried to, you know, get involved in businesses that didn’t belong in or couldn’t execute on.

Tony Kynaston: I think you summarized it beautifully before they, they tried to grow and they went back to basics. It’s so, it’s like it’s, there’s only ever two chapters in the history of businesses, isn’t it? They try and grow. They either [00:32:00] succeed or they go back to basics, and then they become profitable again.

Yeah.

Cameron: yeah, it off. Refocus. And if you can do that. know, pull it off. It’s a great story.

Tony Kynaston: Yeah. And

Cameron: you will pull it off, but

Tony Kynaston: no,

Cameron: to be doing a good job.

Tony Kynaston: but how many times have we seen boring company throwing off lots of cash? New CEO comes along and says, Hey, we can grow. Completely ruins the company. And then they toss the CEO out and go back to being a boring company, throwing off lots of cash.

Cameron: So in terms of ownership of these guys, nothing really. Um, surprising About 76% institutional, no majors here. Qatar, the country holds 6.1% Interesting. Sovereign linked funds, but they’ve got a pretty big, uh, free float. But here’s the

Tony Kynaston: Yeah.

Cameron: interesting thing. I wanted to talk about this really.

Um. It was interesting. Um, there’s a thing called the German co [00:33:00] determination Law. You ever come across that,

Tony Kynaston: I have not, no.

Cameron: I love this. So the company has two boards. They have, um. What they call the Vorstand, which is the management board runs the company day to day and an Aufsichtsrat which is the supervisory board that oversees the management board,

Tony Kynaston: Mm-hmm.

Cameron: has the power to appoint and fire the members of the management board and the supervisory board. Supervisory board is. elected by shareholders and half elected by employees.

Tony Kynaston: Okay, that’s different because I, I had come across that concept. It’s if you put AG after your name, I think if you’re a German company, um, which is the, like proprietary limited in Australia or limited in America, [00:34:00] it’s limited liability for the shareholders to the capital that they put in. Uh, I think it’s the, the two board structure is a requirement under the corporation’s law of Germany to.

To, um, be able to limit your liabilities as a shareholder.

Cameron: Right,

Tony Kynaston: I didn’t know it was half elected by the staff though.

Cameron: Half elected by the staff and the history goes back apparently to, um, after World War II when the allies were running everything over there. They didn’t want a concentration of power in the hands of the elite like they saw during the Nazis. Uh,

Tony Kynaston: Right.

Cameron: it was set up this way. So any company with more than 2000 employees, according to this 1976 Co-determination Act has to have this, um, structure in place. Um. they’re not advisory, they’re not non-voting. These are actual

Tony Kynaston: Yep.

Cameron: votes. They get to, uh, they have power, real power line workers, senior staff, trade union officials, [00:35:00] whatever the relevant union is, actually get to determine who the

Tony Kynaston: Wow.

Cameron: company is. Like it’s, I wish we had that here and make things here.

One thing it means though is you don’t, uh uh, you don’t get a lot of activist positions, and these companies are a little bit more. Conservative in, um, how they deal with employees and how they deal with, uh, you know, cost cutting and those sorts of things. meaning that they’re, they’re not, you know, taking big swings and probably gonna fire everyone to, uh, replace them with AI to bring costs down or something like that. For companies between 500-2,000 employees, employees get one third of the supervisory board. 500. No co-determination is required. Um, the shareholder side has one structural advantage. The chairman of the supervisory board is from the shareholder side and gets a tie breaking vote in deadlock.

Tony Kynaston: Mm-hmm.

Cameron: [00:36:00] But in practice, these things usually never get to a tied vote. It’s sort of, um, managed in a way so that never needs to get deployed because that would sort of mean something goes nuclear. So normally they reach a consensus. So yeah. Anyway, I thought that was a really interesting corporate structure that I’d never heard of before.

Tony Kynaston: Similar to the industry Super Funds in Australia, which are now large companies, which have half elected reps from the staff.

Cameron: Do they? I didn’t know that. Okay. There you go. Um, so it’s what economists call the Rhineland model. Stakeholder Capitalism with banks, workers, and long-term shareholders, all having seats at the table versus the Anglo-American model of shareholder primacy. What it translates. Two though is hostile takeovers are nearly impossible. You’re not gonna win a, uh, a board fight when half the directors are [00:37:00] workers who’d lose their jobs.

Tony Kynaston: Right.

Cameron: Mass layoffs are politically expensive. thinking is structurally enforced. Uh, activist investors have a much weaker hand than they might have in New York, also means that returns on equity tend to be structurally lower than US companies

Tony Kynaston: Really. Okay.

Cameron: I said, yeah, that’s the trade off.

Germany trades on average at lower price to book and lower PE multiples than the US partly because it produces more stable, but less dynamic

Tony Kynaston: Yeah. Okay.

Cameron: allocation as a result. So anyway, I thought that was fun. Um, let me get into the numbers. Um, stock was trading at about $31.11 on the NYSE.

When I did my analysis, market cap was about 59.5 billion USD. Down about 19% year to date, despite record numbers, [00:38:00] um, for whatever reasons might be due to the European Central Bank being expected to start cutting rates in 2026 the Trump tariff drag on European corporates or the Eurozone recession scare or. Iran or who knows why the, why it’s down, but it’s down. Citi recently called the sector cheap and recommended buying the dip. Um, they’re doing a $1 billion euro buyback at the moment. It’s about 60% complete. Expected to wrap by the end of August. They’re paying a dividend of one euro per share. X date is May 29th, yields 3.85%. So that’s all good. Um, getting into the QAV numbers, um, F score is a five, so I scored it for that. The price is, [00:39:00] price is. Less than IV2. I had to do the EUR conversion to work out IV2. After the Euro conversion, it turned out to be about $41 versus the price of $31, so it’s price is lower than IV2.

I could score for that. Prices lower than book. Uh, and Book plus 30, book value growth is positive. Three year CAGR is about 3.69%. Um, Pr/OpCaf three point trend line. Obviously it scored well for those. And it couldn’t score for quality rank or stock rank. Prices above IV1 didn’t score for growth over PE being greater than 1.5, yield greater than bank debt, PE less than yield or forecast IV being higher than twice the price.

So it ended up with a quality score of nine outta 13 a QAV score of [00:40:00] 0.65.

Tony Kynaston: that’s high.

Cameron: It is high. Yeah, it is high. Um, did I, I don’t have the price to operating cash flow in my notes here. That’s weird. I normally copy and paste it in. Let me just grab that. price to operating cash flow 1.05, which is, um, kind of insane.

Tony Kynaston: Yep. Although I’ve got, you know, you’ve gotta point out that banks have a differing operating cash flow model to your typical coffee shop. So,

Cameron: they

Tony Kynaston: yeah. So you, I, I, I’ve debated for years whether or not to use the metric, we use price to operating cash flow for banks, and I’ve persisted with it

Cameron: Yeah.

Tony Kynaston: the basis that it tends still to correlate to a good.

A good valuation when the operating cash flow is high in a bank.

Cameron: yep.

Tony Kynaston: even though it’s not the same as having a, you know, a high gross margin in a coffee shop, for example. They [00:41:00] are different things.

Cameron: Yep.

Tony Kynaston: yeah. So it’s kind of almost like it’s a correlation for good valuation with a, with a bank rather than being as, um, numeric, I guess as a quantifier as we do for industrial companies.

But I’ve still, I still persist with it.

Cameron: Yeah. Yeah. Well I know that we’ve done banks before,

Tony Kynaston: Mm-hmm.

Cameron: and, and you know, they work out okay

Tony Kynaston: Yeah. Well what what they’ll often find though is the operating cash flow might be high this, this month or this half, and it may not be next half.

Cameron: Yep.

Tony Kynaston: ‘ cause it, it’s, it’s got to do a lot with, you know, bonds being issued and, um, proceeds from, uh, you know, other things. Um, not just straight margin that, that we would look at in a business sense.

There’s a few other things in there.

Cameron: And the title for this episode is The House Spank that came in from the cold, Tony.

Tony Kynaston: The House of Trump Bank, the.

Cameron: Oh, no, we don’t wanna, we don’t wanna do

Tony Kynaston: Did, did you see that, um, on the, [00:42:00] as a tangent, did you see that? Uh, Amazon is thinking of reviving the Apprentice, but starring date Donald Trump Jr.

Cameron: I saw that in your notes. Yeah, that’s, uh, terrifying. Well, with that, I need to go to Mortal Kombat,

Tony Kynaston: All right.

Cameron: thank you TK. Have a good week

Tony Kynaston: Enjoy the movies.