Deutsche Bank on Sunday (July 7) announced one of the biggest overhauls of its investment bank since the financial crisis. The German lender will slash 18,000 jobs out of 74,000 around the world by 2022 and scrap its global equities sales and trading business in a bid to improve profitability.
Bloomberg and the Nikkei Asian Review reported on Monday (July 8) that the ailing financial giant plans to close the majority of its equities business in the Asia-Pacific region while Reuters reported that the German company is also disbanding its Australian equity capital markets team.
Bloomberg also said Deutsche Bank is expected to stop trading of cash equities, equities research and potentially underwriting of initial public offerings. The Financial Times also confirmed that Deutsche Bank staff in London are being asked to leave the building.
The Frankfurt-based bank's equities business is focused largely in London and New York.
The restructuring plan, which also involves the creation of a 74 billion euro ($83.05 billion) so-called bad bank, will cost 7.4 billion euros ($8.3 billion) over the next three years. The efforts are aimed at reducing adjusted costs by €6 billion per annum.
The German bank’s decision to scale back on investment banking follows the failure of merger talks with rival Commerzbank in April and comes just two days after the departure of investment banking chief Garth Ritchie who stepped down by “mutual agreement” on Friday (July 5).
JPMorgan analysts called the plan “bold and for the first time not half-baked” but said questions remained, including about credibility of execution, revenue growth details and employee motivation. “It’s a risky maneuver, but if it succeeds, it has the potential to bring the bank back on course,” Reuters quoted a person close to one of the top 10 biggest shareholders as saying.
Stephen Isaacs, chairman of the investment committee at Alvine Capital management, told CNBC’s “Squawk Box Europe” on Monday that it was “about time” Deutsche Bank took action to improve profitability.
Monday (July 8) began with job cuts in Sydney, Hong Kong and elsewhere in the Asia-Pacific while shares were looking to reach the highest level since May 2 on the opening bell in Frankfurt climbing as much as 5.3% to €7.55 per share. As of the last close, Deutsche shares were down 26.49% year over year but have risen 16% over the past month.
The bank, which plans to release second quarter results on July 24, expects to report a net loss of 2.8 billion euros in the second quarter of 2019. Common equity dividends are suspended by the end of next year.
Deutsche Bank CEO Christian Sewing, who promised shareholders “tough cutbacks” to the investment bank, is due to speak to the media initially and then address analysts later on Monday.
The 149-year-old bank, had been actively building up its investment banking segment, including securities trading, since its acquisition of Bankers Trust in 1998 for $10 billion. After two decades of intense competition with American rivals, it looks like it cannot keep pace with major forces on Wall Street.