Deutsche Bank Shares Fall Sharply on Restructuring--3rd Update
July 08 2019 - 1:31PM
Dow Jones News
By Paul J. Davies and Jenny Strasburg
Deutsche Bank AG was quick to start firing staff from its
investment bank on Monday. Its investors will need to wait much
longer to discover how the German lender's radical restructuring
will affect them.
Shares in the troubled global banking group fell sharply as
investor skepticism set in during Monday's trade. The stock was
down as much as 7.25% in the afternoon, its biggest one-day fall
this year and a big reversal from a rise of more than 4% shortly
after the open. It finished the day down 5.4%.
Chief Executive Christian Sewing gave more details in
presentations on Monday of a plan to cut 18,000 jobs, slash group
expenses by 25% and quit large areas of the investment banking
business, a big drag on its performance.
He admitted returns have been unacceptably low and costs too
high. "Too many resources went to businesses where we don't compete
to win," he said. "Simply put, we kept too many options open," he
said.
Despite the big promises, some shareholders said it would take
time to see any results.
The restructuring appeared to go much further than expected in
cutting businesses, and there was relief among investors that the
bank said it didn't expect to ask shareholders for fresh capital to
help pay for thousands of job cuts.
The costs of the overhaul will push Deutsche Bank 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 and revenue losses than the
bank expects, potentially leaving it still in need of capital.
James von Moltke, chief financial officer, said there was
significant uncertainty over whether the bank would break even in
2020.
Some analysts were skeptical of the bank's optimism over
expected returns on equity, mainly because of doubts about its
revenue forecasts even though it has targeted only 2% growth a year
for its core businesses.
"The renunciation of a capital increase is basically positive,
but will burden the bank's earning power for years to come," said
Alexandra Annecke, portfolio manager at Union Investment in
Germany. "The shareholders still need staying power."
Mr. Sewing attempted to show his own staying power and faith in
the plan by pledging to invest a substantial amount of his own
fixed salary into Deutsche Bank stock.
Most of the cuts will come in equities trading, while in Asia
the bank will shut the majority of its equity-raising business,
too, according to people familiar with the plans. Some staff in
Asia and London were told they had lost their jobs on Monday, but
there was less activity at the bank's Frankfurt headquarters.
"It is pretty apparent that within CIB [the investment bank] a
lot of people didn't really show up today in Frankfurt, I think out
of feelings of depression more than anything else," said one
investment bank employee who didn't want to be named. "It's like a
ghost town."
"The days of spectacular ambition in this [investment-banking]
division are behind us," Mr. Sewing told reporters on Monday. He
said the bank will focus its resources on companies rather than
hedge funds or other asset managers, and invest in areas like cash
management for European clients where it can earn more stable and
sustainable profits. "We will reconnect this bank to what it used
to be."
That said, it has no plans to trim down its U.S.-focused
business of creating and selling risky loans for private-equity
backed companies, according to Mr. Sewing, despite widespread
warnings from regulators and others of the growing risks in this
market.
It will also continue to produce equity research as a
stand-alone product to sell to institutional investors even though
it won't offer equities trading. The bank said equity and
macroeconomic research would support its advisory work for
companies looking to do deals or list their shares on stock markets
in its remaining equity capital markets business.
"Deutsche has a good product, but it is pretty hard to make
money from stand-alone equity research," said Daniel Davies, a
managing director at Frontline Analysts, an outsourcing and
training firm for financial analysts. "This may have been cooked up
by a manager who doesn't understand the importance of being in the
flow of equity trading when it comes to equity capital
markets."
Deutsche Bank also plans to spend EUR13 billion on technology
and another EUR4 billion on improving its control even as it tries
to cut EUR6 billion of costs. The bank has been hit by fines from
U.S. and European watchdogs for a range of compliance failures and
risky transactions in Russia and elsewhere.
Two congressional committees are probing the bank's
money-laundering controls broadly, along with its ties to President
Trump, his campaign and people and entities connected to him.
Julie Steinberg, Bojan Pancevski and Patricia Kowsmann
contributed to this article.
Write to Paul J. Davies at paul.davies@wsj.com and Jenny
Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
July 08, 2019 13:16 ET (17:16 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Aug 2024 to Sep 2024
Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Sep 2023 to Sep 2024