Deutsche Bank AG unveiled a radical overhaul that would see the lender exit its equities business, post a 2.8 billion euro (US$3.1 billion) second-quarter loss and cut the workforce by one-fifth to reverse a slide in profitability.
Chief executive officer Christian Sewing would shelve the dividend this year and next, and take restructuring charges of 7.4 billion euros 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 the government-brokered merger talks with Commerzbank AG collapsed in April, the CEO had few alternatives to bolster market confidence. His plan was approved by the board at a meeting on Sunday.
Some of the financial targets set out in the plan look overly optimistic and the goal of achieving a return on tangible equity of 8 percent by 2022 looks “highly improbable,” Citigroup Inc analysts, including Andrew Coombs and Nicholas Herman, wrote in a note to investors.
About 74 billion euros of risk-weighted assets would become part of a new non-core unit and the lender’s capital buffer would 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 that 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 that he needs to be strategic with the scarce financial resources he can generate.
It would be the first time since at least 1993 that Deutsche Bank does not distribute a dividend.
The bank said that retail chief Frank Strauss and chief regulatory officer Sylvie Matherat, both board members, would leave this month.
The departure of investment bank head Garth Ritchie was announced on Friday last week.
Other executives would be on the rise. Stefan Hoops was named to oversee the new “corporate bank” unit that would 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 AG, would join on Sept. 1 and be responsible for data and innovation; and Stefan Simon would become chief administrative officer, and oversee regulatory and legal affairs.
The investment bank is the focus of the overhaul. The unit, which accounts for about half of Deutsche Bank’s revenue and which was the cause of its decline, would be broken in two.
The bank is accelerating its shift away from institutional trading clients, like hedge funds and asset managers, and would instead focus on servicing big companies, offering them cash management, trade finance and hedging.
The change is designed to accelerate the shift away from acting as the first port of call for institutional clients such as asset managers and hedge funds toward selling cash management, trade finance and hedging products to corporate clients.
The new division, headed by Hoops, would be at the heart of the lender’s future business model.
“We remain committed to our global network and will help companies to grow and provide private and institutional clients with the best solutions and advice for their respective needs — in Germany, Europe and around the globe,” Sewing said on Sunday.
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