Deutsche Bank’s ‘fundamental transformation’ under CEO Christian Sewing to cost US$8.3 billion and 18,000 jobs
- Bank to shelve dividend this year and next to pay for the restructuring that will shrink its investment bank, global footprint and fixed-income business
- Investors cheer, sending the bank’s shares 4.4 per cent higher in early trading
Deutsche Bank unveiled a radical overhaul that will see the lender exit its equities business, post a €2.8 billion (US$3.1 billion) second-quarter loss and cut the workforce by 18,000 to reverse a slide in profitability.
Chief executive Christian Sewing will shelve the dividend this year and next and take restructuring charges of €7.4 billion through 2022 to pay for an overhaul that shrinks the German lender’s once-mighty investment bank along with its global footprint and key fixed-income business.
“Today we have announced the most fundamental transformation of Deutsche Bank in decades,” Sewing said in a statement on Sunday. “We are tackling what is necessary to unleash our true potential.”
The scale of the revamp underscores the failure of Sewing and his recent predecessors to solve the fundamental problem: costs were too high and revenue too low. After government-brokered merger talks with Commerzbank collapsed in April, the CEO had few alternatives to bolster market confidence. His plan was approved by the board at a meeting on Sunday.
Deutsche Bank climbed as much as 4.4 per cent in Frankfurt trading and was up 3.7 per cent at €7.44 in early trading, making it the best performer on the STOXX Europe 600 banking index and the second best on the broader STOXX 600 index.
Some of the financial targets set out in the plan look too optimistic and the goal of achieving a return on tangible equity of 8 per cent by 2022 looks “highly improbable,” Citigroup analysts including Andrew Coombs, Nicholas Herman wrote in a note to investors.
About €74 billion of risk-weighted assets will become part of a new noncore unit and the lender’s capital buffer will be reduced as part of the plan. With the stock price down by half in the past two years, selling new shares was not an option and the bank said it does not plan a capital increase to pay for the overhaul.
Instead, Sewing is tapping into the bank’s capital cushion to fund what he has billed as the bank’s biggest restructuring in decades – which means he needs to be strategic with the scarce financial resources he can generate. It will be the first time since at least 1993 that Deutsche Bank will not distribute a dividend.
The bank said retail chief Frank Strauss and chief regulatory officer Sylvie Matherat, both board members, will leave this month. The departure of investment bank head Garth Ritchie was announced on Friday.
Other executives will be on the rise. Stefan Hoops was named to oversee the new “corporate bank” unit that will combine the transaction bank and the lender’s corporate-clients unit. Three management board members where appointed: Christiana Riley is taking over responsibilities for the Americas, Bernd Leukert, formerly of SAP, will join on September 1 and be responsible for data and innovation. Stefan Simon will become chief administrative officer and oversee regulatory and legal affairs.
The investment bank is the focus of the overhaul. The unit, which accounts for roughly half of Deutsche Bank’s revenue and which was the cause of its decline, will be broken in two.
Deutsche Bank’s plan to downsize its investment bank, revamp management and cut costs while investing in controls and technology could open the most promising path yet to boosting profitability, according Bloomberg Intelligence’s early analysis, after years of piecemeal changes that failed to deliver. Execution will be critical.
