DB Deutsche Bank Aktiengesellschaft

By Jenny Strasburg and Paul J. Davies 

Investors sent shares in Deutsche Bank AG sharply lower Monday as they cast a skeptical eye on the German lender's plan to radically restructure its business.

In early afternoon trade the bank's shares were down 4.8% at EUR6.83. The bank's shares earlier had risen 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.

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 09:47 ET (13:47 GMT)

Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Mar 2024 to Apr 2024

Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Apr 2023 to Apr 2024