DB Deutsche Bank Aktiengesellschaft

By Jenny Strasburg and Avantika Chilkoti 

Deutsche Bank AG shares slid a second day as investors and analysts questioned the German lender's growth projections and management's grip on a restructuring that is more complicated and far-reaching than previous, failed overhauls.

Deutsche Bank shares were down 4% to EUR6.52 in afternoon trading Tuesday in Frankfurt.

Deutsche Bank's chief executive, Christian Sewing, and finance chief James von Moltke promised this restructuring is different -- describing their actions as bolder moves by more decisive management, in a presentation to analysts Monday.

The two executives used the word "conservative" two dozen times when describing Deutsche Bank's growth targets and the underlying assumptions.

So far, shareholders aren't buying that characterization.

Tuesday's decline followed a 5.4% fall on Monday, one day after the struggling lender revealed a turnaround plan expected to cost EUR7.4 billion over four years and eliminate 18,000 jobs -- about one in five full-time positions currently at Deutsche Bank.

Mr. von Moltke told analysts Monday that bank officials expect to make a profit in 2020, after booking a full-year 2019 loss, factoring in billions of dollars in restructuring charges.

"We are more cautious," Stuart Graham, head of banks strategy at Autonomous Research wrote in a Monday note. Autonomous has a EUR5.45 price target on Deutsche Bank shares and remains skeptical about the bank's expectations for interest-rate increases in coming years, as well as its projections for market-share gains in core businesses.

"Deutsche will be a huge building site, and visibility will be low for several quarters," Mr. Graham wrote.

Deutsche Bank executives stand by their view that the restructuring targets are conservative and the bank will meet them, a spokesman said Tuesday. He said the bank has received positive feedback from clients.

As part of its sweeping new plan, Deutsche Bank reorganized its investment bank, essentially splitting it in two, in the process creating two new divisions. One serves corporate-banking clients with services like cash management and currency hedging, and the other, called the Capital Release Unit, will wind down or sell unwanted businesses and client positions.

Three management-board members are out this month, including the investment-banking chief, with three new executives appointed to succeed them. They include Christiana Riley, currently the investment bank's chief financial officer. She'll take over responsibility for overseeing the bank's shrinking U.S. operations. The Wall Street Journal reported last month she was the top internal candidate to oversee the Americas region.

One of Deutsche Bank's most decisive moves Sunday was shutting down its money-losing equities-trading operation. But the scope and implications remain murky, wrote JPMorgan Chase & Co. analyst Kian Abouhossein in a note published Tuesday.

A complete closure of Deutsche Bank's equities business would hurt its advisory and equity capital-markets business more than the bank wants to, Mr. Abouhossein wrote, calling the closure plans a balancing act requiring further clarity.

Some people inside and close to the bank say clients have similar questions, including corporate customers who've tapped Deutsche Bank for deal financing and other banking services. Bankers have told clients the scope of remaining businesses is still being worked out inside Deutsche Bank, some of the people said.

Filippo Alloatti, senior credit analyst at Hermes Investment Management, said in an interview that investors doubt particular assumptions in the restructuring plan, including Deutsche Bank's 2022 targets of an 8% return on tangible equity and EUR25 billion in revenues.

The restructuring is late but necessary, Mr. Alloatti said. Still, investors "are questioning some of the hypotheses in the plan," he said, including the bank's expectations for how little revenue it will lose during the turbulence of restructuring. "Some people think this is a little too optimistic, given come September we could have another cut in the deposit rate by the ECB."

Deutsche Bank's shares are under pressure from analysts' downgrading their forecasts for returns and tangible book value per share, key metrics for bank valuations. A lower return on a smaller book value necessarily leads to a lower share price. Since the start of 2018, forecasts for both numbers have fallen substantially.

For example, consensus forecasts for returns on tangible equity in 2020 have been cut to 2.6% now from 6.5% at the start of 2018, according to FactSet. Tangible-book-value-per-share forecasts have also been cut to EUR24.97 now from EUR30.51 at the start of 2018.

Some analysts have made further cuts in light of the bank's strategy overview and changes.

Paul J. Davies contributed to this article.

Write to Jenny Strasburg at jenny.strasburg@wsj.com and Avantika Chilkoti at Avantika.Chilkoti@wsj.com

(END) Dow Jones Newswires

July 09, 2019 14:30 ET (18:30 GMT)

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