Frankfurt: German banking giant Deutsche Bank AG (DB) said on Sunday that it would slash thousands of jobs and sell a large part of its investment banking operations in a major overhaul that might be the troubled German lender’s last chance to reverse a decade of decline.
The reorganization and cost-cutting plan focuses on Deutsche Bank units involved in selling stocks and bonds, which are concentrated in New York and London. The bank said it would exit its equities sales and trading business while cutting the size of a division that deals with securities that pay a fixed interest rate.
Deutsche said its overhaul would result in the loss of about 18,000 jobs.
The overhaul announced on Sunday also calls for more than $300 billion in high-risk assets to be sequestered in a separate unit, where they will be sold off or retired. That is an attempt to address perceptions that Deutsche Bank is still burdened by toxic assets.
Deutsche Bank also said it expected to report a loss for the second quarter of 2.8 billion euros, or $3.1 billion, after subtracting the costs involved in carrying out the plan.
The question in the months ahead will be whether the turnaround effort by Christian Sewing, Deutsche Bank’s 49-year-old chief executive, comes too late. Other European banks like UBS of Switzerland and Barclays in Britain pared back their ambitions after the 2008 financial crisis, but Deutsche Bank clung to investment banking even as the unit generated multiple scandals and billions of euros in losses.
Until Mr. Sewing, an expert in risk management, took over last year, Deutsche Bank was led by investment bankers reluctant to make drastic changes. They continued to collect handsome paychecks even as the bank’s share price plummeted. The plan outlined on Sunday is an attempt to break decisively with the past, but many analysts and investors question whether it will be enough.
Deutsche Bank’s appetite for risk was perhaps epitomized by its relationship with Donald J. Trump. Deutsche Bank continued to lend to the Trump Organization long after other lenders concluded that the risk was too great. In the last year, Deutsche Bank has also been battered by accusations of lax money laundering controls and has been under intense scrutiny by regulators in the United States and Europe.
Though Deutsche was once the largest bank in Europe as measured by assets, its stature has declined along with its share price, which has fallen 95 percent since peaking in 2007 and hit a record low in June. Yet there have been no known takeover offers, even though Deutsche Bank could be had for a bargain price — a measure of how troubled the bank is considered within the industry.
An attempt to merge with Commerzbank, which is also based in Frankfurt, fell apart in April amid opposition from shareholders who said the potential benefits were outweighed by the cost of trying to unify the two rivals.
The reorganization plan unveiled on Sunday, which had been widely anticipated, is an attempt to address the bank’s high operating costs in relation to revenue. The bank said it would reduce its cost-income ratio, a measure of efficiency, to 70 percent by 2022. That compares with 93 percent in the first quarter of 2019. The lower the number, the more efficient a bank is considered to be.
Mr. Sewing told shareholders in May that he was planning “tough cutbacks.”
Deutsche Bank is also expected to shrink its nine-member management board, but did not immediately offer details on Sunday. Garth Ritchie, the head of the investment bank, who received only a tepid endorsement from shareholders at the annual meeting in May, will leave at the end of July, Deutsche Bank said on Friday. Sylvie Matherat, the chief regulatory officer blamed for the bank’s failure to emerge from a history of scandal, is also expected to leave.
Shareholders are likely to applaud the most decisive attempt yet by the bank to scale back risk and return to its roots as a provider of financial services to German companies with global operations.
But the plan does not address another urgent problem, the lack of profitable businesses with potential for growth. Unlike many rivals, Deutsche Bank does not have a base of domestic depositors who provide consistent profits and low-cost capital.
The European banking market is notoriously overcrowded, with too many banks competing for too few customers. Deutsche Bank has lost depositors to rivals like ING, a Dutch bank that serves German customers online. ING is more than twice as efficient as Deutsche Bank, measured by the number of customers each employee serves.
Until the financial crisis, Deutsche Bank generated much of its profit from high-risk businesses, such as issuing and trading derivatives. Those businesses are no longer as profitable because regulators have restricted banks’ use of borrowed money.