Deutsche Bank Tries to Reassure Investors Over Restructuring--Update
July 08 2019 - 7:51AM
Dow Jones News
By Jenny Strasburg and Paul J. Davies
Deutsche Bank AG shares fell Monday despite the German lender
insisting it could radically restructure its business without
having to ask shareholders for more capital to help pay for staff
cuts and losses.
The bank's shares initially rose more than 4% after Deutsche
Bank released an outline of its plan on Sunday to cut 18,000 jobs,
significantly shrink its investment bank and reduce costs by
one-quarter. However, the stock quickly lost Monday's early gains
to trade about 0.7% lower by late morning.
The bank said the costs of the overhaul would push it into
reporting a net loss of EUR2.8 billion ($3.14 billion) for the
second quarter when it reports results on July 24. Analysts
applauded the ambition of the plans but were cautious because such
major changes to the business could lead to greater costs than
Deutsche Bank expects and leave it still needing a fresh injection
of capital in the future.
Eoin Mullany, an analyst at Berenberg, said that although the
lender was targeting a lower capital ratio, it would only just
clear that based on the bank's own forecasts of the costs involved.
Those forecasts could be thrown off track if there were
difficulties in running down the unwanted assets going into its new
capital release unit, commonly called a bad bank.
"This leaves Deutsche Bank with little room for error and if the
rundown of the capital release unit costs more than expected, [it]
may need to raise capital externally," Mr. Mullany said.
Deutsche plans about 18,000 global job cuts by 2022, or about
one out of five current full-time employees. Chief Executive
Christian Sewing declined to say where the cuts would come in a
call to reporters on Monday but said they wouldn't be concentrated
on one region.
Mr. Sewing said the investment bank would come out of the
restructuring smaller but more stable. The bank needs to focus on
the business areas where it is most competitive, he said. In the
past, "we simply spread ourselves too thin," he added. Mr. Sewing
said the company received a lot of unsolicited interest in the
assets that it plans to exit.
The lender, whose share price has been near a record low for
months, will focus on serving European companies and retail-banking
customers, including wealthy clients. It is aiming to strengthen
businesses like asset management, currency trading, corporate-cash
management and trade finance that support its narrower focus.
Even though Deutsche Bank's shares declined on Monday, analysts
had generally praised the cuts, calling them deeper than expected,
even considering the details that leaked ahead of time. But they
also expressed concerns that the bank's targets, including its 8%
targeted return on tangible equity by 2022, could be too
ambitious.
The bank's home-country disadvantage -- Germany is a low-margin
retail market -- and other headwinds pose risks to its plans.
Investors and analysts want to know where the bank's planned growth
comes from, especially given the gutting of its investment bank,
Europe's continued low-interest rates and other headaches specific
to Deutsche Bank, including mounting regulatory investigations into
potential money laundering.
Deutsche Bank's investment bank will be dramatically shrunk and
reorganized with parts of it being put up for sale. Deutsche Bank
is shelving its efforts to revive trading businesses that have long
struggled to remain competitive.
The bank said Sunday it would exit its global-equities
sales-and-trading business completely but will continue offering
some services, such as share underwriting, to clients.
The efforts to peddle chunks of functioning operations reflect a
stark turn for the European lender that for years has had the
biggest global investment-banking ambitions.
--
Max Bernhard
contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Paul J.
Davies at paul.davies@wsj.com
(END) Dow Jones Newswires
July 08, 2019 07:36 ET (11:36 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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