Once a pillar in the European financial sector, Deutsche Bank has been having the worst year in its entire history. With the stock reaching an all-time low recently, the company announced that they would be undertaking a radical transformation.
Cutting over 18,000 jobs as well as ridding itself of its trading department, this was seen as a desperate measure to cut losses and get the company back in order. Unsurprisingly, the investment bank reported a whopping $3.5 billion loss in the second quarter as a result of the restructuring efforts.
Wiping out what would have been a modest quarterly profit for the company, Deutsche Bank said that it expects 2019 revenues to be below what it reported back in 2018. Although the restructuring will pay off in the coming years through a more focused, leaner business, it will come at the expense of this year’s profits.
“This decline is mainly due to our decision to exit substantially all of our equities sales and trading business,” the bank said in a statement according to The Wall Street Journal. “Excluding transformation charges the bank would be profitable, and in our more stable businesses revenues were flat or growing,” added Chief Executive Christian Sewing.
Investment banking revenue declined by 18 percent from the previous year, while revenue at the smaller asset-management division actually rose by 6 percent and the retail banking division fell by 2 percent. The overall 6.2-billion-euro net revenue seen in Q2 was slightly below the 6.3-billion-euro average expected by analysts.
At the same time, Deutsche Bank’s problems are being exacerbated by various legal issues as well as a historically low-margin retail market in its flagship market in Germany. Chronically low and even negative interest rates have hit European continental lenders hard, cutting deep into their profit margins.
The massive restructuring effort was seen as a kind of last resort for the 149-year-old lender. Earlier in the year, the investment bank was in talks with a smaller German rival Commerzbank for a potential deal to buy out the company.
However, this proposal fell apart, leaving Deutsche Bank no other choice than to undergo a painful restructuring that will leave the company a much leaner version of its former self.
Shares of the European banking giant fell by a massive 5.3 percent in response to the news at the time of writing. With the trading day just beginning in Europe, it’s expected that the company will tumble even more in what could easily become one of the worst day losses percentage-wise for the company.
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
