Deutsche Bank (NYSE: DB) made news over the weekend when it announced that it would be cutting 18,000 jobs across the board, exiting global equities trading altogether as the investment bank looks to undergo a dramatic transformation.
For the past few months, the company has been struggling, with their investment banking division has been in decline for the past few years. At the same time, Deutsche Bank’s stock price has plummeted more than 80 percent since 2009. It’s unsure whether streamlining the bank’s various divisions will create the turnaround that the company’s shareholders are looking for.
Besides cutting 18,000 jobs, the decision to exit global equities trading altogether will end up transferring over $100 billion of risk-weighted assets into a so-called ‘bad bank’ as a part of the major overhaul, selling this asset group to other rivals. Currently, Deutsche Bank is in preliminary talks with its French rival BNP Paribas for the sale of these divisions, although the potential deal could fall apart later down the road.
“Today we have announced the most fundamental transformation of Deutsche Bank in decades,” said Christian Sewing, chief executive of the Deutsche Bank. “We are tackling what is necessary to unleash our true potential: our business model, costs, capital and the management team. We are building on our strengths. This is a restart for Deutsche Bank — for the long-term benefit of our clients, employees, investors and society.”
Deutsche went on to say that they are expecting most of their investment banking income to come from businesses where they have a top five position. Management has set a target return on tangible equity (RoTE), a key profitability metric, of 6 percent in the future, as opposed to the 0.6 percent RoTE seen in Q1 2019.
Overall, the restructuring will cost a little over $10 billion over the next three years. With prior merger talks with it’s rival Commerzbank failing to move ahead back in April, analysts and shareholders have resigned themselves to the hope that a major restructuring would rekindle the company’s long-falling stock price. Time will tell whether this will prove to be the case.
Share prices for the major European bank have been steadily falling over the past decade, showing little signs of recovery. However, over the past week, the stock has seen a mild comeback, climbing from $6.9 to $8 as of Friday, a 16 percent gain over the past five days. However, this recent development is expected to lead to an influx of volatility, and it wouldn’t be surprising to see the stock fall in response to this recent development.
Deutsche Bank Company Profile
Deutsche Bank, Germany’s leading private bank, has a strong presence in Europe, America, and Asia-Pacific. The bank has its roots in Germany, where 30% of total banking revenue is driven.
With its ongoing business restructuring program, the bank is looking to reduce its corporate and investment bank business, as well as focus more on its European business while reducing its presence in USA and Asia. Its asset management business, DWS, was IPO’d in March 2018. Deutsche appointed Christian Sewing as new CEO in April 2018. – Warrior Trading News
