October 29, 2015 8:20 am
Deutsche Bank is to exit 10 countries and cut 9,000 jobs as part of a sweeping strategic overhaul designed to help restore the German lender’s profitability.
In addition to the cuts in its own staff, Deutsche also aims to cut the army of consultants advising the bank by 6,000. Through selling its Postbank subsidiary, Deutsche will shed another 15,000 staff.
Unveiling the final details of its keenly awaited strategic review, John Cryan, Deutsche’s new co-chief executive, said he wanted to lead the bank in a “more disciplined and focused way”.
The bulk of Deutsche’s withdrawals will come in Latin America, where it will cease operations in Argentina, Chile, Peru, Mexico and Uruguay, as well as shifting its Brazilian trading operations to other “global and regional centres”.
In Europe, Deutsche will withdraw from Denmark, Finland, Norway, and Malta. It will also exit from New Zealand.
Deutsche, which is struggling with a growing scandal relating to its Russian business, also said that it would cut the number of clients in its investment banking business by around half, particularly in high risk countries.
The bank said that 80 per cent of its revenues in these businesses came from just 30 per cent of its clients.
The bank’s third-quarter earnings, also released on Thursday, highlighted how far Germany’s biggest lender has to go to meet a series of stretching financial targets.
Deutsche reported a net loss of €6bn in the three months to the end of September, slightly less than the €6.2bn it had flagged earlier this month but far greater than the €92m loss in the same period last year. Revenues were down 7 per cent year-on-year at €7.33bn, versus analysts’ expectations of €7.98bn.
Net income was dragged down by €7.6bn of exceptional charges, also well-flagged. The bank has blamed €5.8bn of the loss on a goodwill write-off at its investment bank and a shortfall between how its retail subsidiary Postbank is valued on Deutsche’s accounts and how much it expects to gain from selling it. Deutsche is also setting aside another €1.2bn to deal with the continuing litigation that has dogged the bank in recent years. A €600m charge is for a reduction in the value of Deutsche Bank’s 19.99 per cent stake in China’s Huaxia Bank.
Less than 24 hours before the earnings release, Deutsche Bank said it would pay no dividend for the next two years in a bid to boost its balance sheet and meet new targets to improve its health.
Mr Cryan, who succeeded Anshu Jain as co-chief executive in July, said the result was “highly disappointing”.
Mr Cryan, who cemented his reputation as a cost cutter and restructuring supremo at Swiss rival UBS, wants Deutsche to achieve a core tier one capital ratio — a key measure of financial strength — of 12.5 per cent by 2018. At the end of the third quarter this was 11.5 per cent, above what Deutsche Bank is required to hold but below most international rivals.
Deutsche aims to cut its risk-weighted assets from €416bn at the end of June, to about €320bn by 2018, and €310bn by 2020, excluding the impact of regulatory changes.
Deutsche will also take an axe to its cost base and is aiming to cut expenses, excluding items such as restructuring and litigation, to less than €22bn by 2018, down from €27.7bn at the end of 2014.
The bank also said it would aim for a leverage ratio of 4.5 per cent by 2018, and 5 per cent two years later, meaning that by 2020 it will hold €5 of equity for every €100 of assets. At the end of September the leverage ratio was 3.6 per cent.