The 150-year-old Deutsche Bank AG (DB) announced on Sunday a much-awaited "radical transformation" that the embattled company hopes will make it leaner and meaner and able to survive in the long term.
The German multinational's shares rose after it revealed a series of measures it will take, including downsizing its investment bank, to cut adjusted costs by approximately 6 billion euros to 17 billion euros by 2022 and achieve a post-tax return on tangible equity of 8% that same year. It aims to free up 5 billion euros to return to shareholders through share buybacks and dividends starting in 2022 and will not pay dividends in the 2019 or 2020 financial years. It will fund this restructuring with 7.4 billion euros from its capital cushion and lower its Common Equity Tier 1 (CET 1) target ratio to 12.5%.
Here are some of the biggest actions the bank will be taking:
- Creating a new Corporate Bank division – the central focus of the firm – to handle global transaction banking and the German commercial banking business
- Shutting down the equity sales and trading business and transferring clients to BNP Paribas, cutting capital used in the fixed-income operations
- Transferring 288 billion euros, or about 20% of the bank's leverage exposure, and 74 billion euros of risk weighted assets (RWA) to a new Capital Release Unit (CRU) or "bad bank" for wind-down
- Laying off approximately 18,000 full-time employees by 2022
- Investing 17 billion euros in improving technology and controls
- Changing management structure
CEO Christian Sewing in a message to the firm's staff spoke about the need for "fundamental rebuilding" that will take the company back to its roots. The bank was founded in 1870, a period of rapid industrial growth in Europe, with the main aim of financing German foreign trade and facilitating the country's trade relations with other countries, an area in which British banks were unrivaled at the time.
"The transformation will bring us closer to our core strength, our DNA," said Sewing. "In those areas where we are not currently competing to win, we are now taking decisive action. Indeed, we have no choice other than to concentrate our strengths and resources where we play to win and where we can make a true difference for our clients."
The company expects a second quarter 2019 loss before income taxes of approximately 500 million euros and a net loss of 2.8 billion euros. It predicts "better and less volatile financial results" in the long run as a result of the transformation. The bank's shares have fallen around 50% in the last two years.