We are continuing our Hold on Deutsche Bank AG (DB). Deutsche Bank posted 3rd quarter earnings before nonrecurring items of 206 million, down 76% from the year-ago quarter, and below our estimate. We note that pretax earnings benefitted by 820 million from the reclassification of financial assets under amended accounting rules. In addition, DB further reduced risk exposures.

We are lowering our EPADS estimates to $0.10 from $5.00 for 2008 and to $10.50 from $11.90 for 2009, partly due to changes in FX assumptions from recent sharp depreciation of the against the US$. DB's results should be bolstered by the acquisition of a 30% interest in Deutsche Postbank in first quarter 2009, though earnings should continue under pressure due to global economic weakness and higher loss provisions from weaker asset quality.

Deutsche Bank is trading at 4.1X the consensus 2009 earnings per share estimate, below the 6.2X median P/E ratio for the industry, based on 2009 consensus estimates. While DB's expected growth rate of 5% is below the median for the industry, DB's dividend yield of 15.6% provides an above-industry median return. We note, however, that the dividend may be cut in order to preserve capital.

We think the shares are appropriately valued at present, and do not see any near-term triggers to propel share movement over the near term despite DB's low valuation. Our $40 price target equates to roughly 4X our $10.50 EPADS estimate for 2009.