Deutsche Bank’s investment banking arm will bear more than half of the group’s planned cost cuts, its chief financial officer said on Wednesday, as he admitted that the lender would continue to lag peers in the second quarter.
“Of the €2 billion planned cost reductions between 2017 and 2019, more than half is expected to come from the corporate and investment bank,” James von Moltke told a conference.
“Our lack of profitability is still holding us back,” he acknowledged, adding that while peers are expecting flat revenues in the second quarter, Deutsche Bank’s performance would likely be “a little worse” given the bank’s current transition.
“We have the resources and we need to succeed. We simply need to gain positive momentum.”
Deutsche Bank has said it plans to cut costs to €22 billion by the end of 2019 and has announced plans to reduce headcount to below 90,000 from 97,000, with a 25 per cent cut in equities sales and trading jobs, which are mainly in New York and London and where it has been losing ground to US rivals.
Our lack of profitability is still holding us back
In a first step, group headcount is to fall to below 93,000 by year-end, Von Moltke said, adding this would help increase Deutsche’s profitability. It is targeting a return on tangible equity of more than four per cent next year and of around 10 per cent by 2021.
By comparison, large US banks have recently posted returns of 10 to 12 per cent.
“While some of you have argued that our plans are not radical enough, we believe that our plan, if successfully executed, should generate the best possible return profile for our shareholders,” Von Moltke said.
Christian Sewing, a Deutsche Bank ‘lifer’ who was appointed CEO in April after the removal of predecessor John Cryan, reiterated at a different event in Berlin that the bank will withdraw from business areas where it is no longer relevant enough.
Past misadventures in high-risk investment banking have haunted his attempt to refocus the bank onto its more staid corporate banking roots.
Last week, Deutsche Bank’s shares reached an all-time low following a report that the US regulator viewed the lender as “troubled” last year, while Sewing said on Wednesday that all the bank’s subsidiaries in the US were “very healthy”.
Separately, ratings agency Scope on Wednesday downgraded Deutsche Bank’s rating outlook to “negative” from “stable”, citing steep challenges for the bank’s business-model as well as risk from the legacy of past activities.
That followed a downgrade of Deutsche’s credit rating by Standard & Poor’s to BBB+ from A- on Friday, which had prompted the ECB and Deutsche’s biggest investor to reassure shareholders and staff of the lender’s financial strength.
Sewing admitted last week that the newsflow was “not good” as S&P questioned his ability to get Deutsche Bank back to profit after three years of losses by scaling back its global investment bank and refocusing on Europe and Germany.