Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest


Deutsche Bank Corrects TUI Note
Hilda Arends, June 18, 2009, WSJ


FRANKFURT -- Deutsche Bank AG, in a rare move, Thursday corrected its target price for the stock of travel and tourism company TUI AG after the share price tumbled earlier in the week on the basis of a research note issued by Germany's biggest bank.

Deutsche Bank said that, in a note issued Monday, it had incorrectly classed an inter-company loan to subsidiary TUI Travel PLC "as a consolidation adjustment rather than a genuine asset." It added that "largely because of this we adjust our price target from 1.9 euros to 4.4 euros."

TUI spokesman Robin Zimmerman told Dow Jones Newswires the travel and tourism company had notified Deutsche Bank about the error, adding he was astonished that assumptions from the initial research note were changed overnight, without pointing them out explicitly in the correction.

Later, TUI in a statement said some assumptions were adjusted "to the detriment of the TUI valuation." It pointed out that now, for example, Deutsche Bank's corrected note includes a 20% so-called conglomerate discount.

If Deutsche Bank only corrected Monday's mistakes, and made no other amendments, TUI's valuation would be around six euros, TUI said, adding that this is hardly different from the company's share-price level before the first research was published Monday, "and would probably not have justified a sell recommendation."

A conglomerate discount is a way to undervalue a conglomerate because it values the conglomerate lower than when adding up the value of all units. This has a negative impact on the stock's target price.

Germany's largest bank by market capitalisation repeated in its correction it believes "TUI AG is significantly exposed to container shipping because it has assumed the role of principal lender to Hapag-Lloyd, and its hotels are significantly leveraged and over-reliant on tour operator business." It maintained its sell recommendation.

TUI shares Thursday initially climbed almost 6% on the revision, but fell back and closed flat at 5.16 euros. After Deutsche Bank's initial research note, the shares fell about 22% to 5.02 euros at Tuesday's close, after opening Monday at 6.47 euros.

Deutsche Bank's silence on the issue so far had triggered market talk about how it came to such an about-face -- whether this was a genuine error of math or whether other factors weighed in, such as a possible complaint from TUI.

Deutsche Bank said in a written response Thursday that shortly after the publication "we realised that we may have misinterpreted a technical issue regarding the treatment of an intercompany loan. As soon as we identified this issue, and given that it impacted our valuation on the stock, we issued an updated note." It added though that this didn't lead to a recommendation change.




  1. Does this lead you to believe that markets are efficient or not?
  2. Do research analysts operate independently of the firm that they are analyzing? What does this incident reveal?
  3. What is a conglomerate discount? Why does it exist?