FRANKFURT: Deutsche Bank’s new chief executive Christian Sewing took firm action on its long-troubled investment bank on Thursday, cutting back bond and equities trading after a dramatic drop in quarterly profit.
“Deutsche Bank is deeply rooted in Europe where we want to provide our clients access to global financing and treasury solutions,” Sewing said, just weeks after becoming its CEO.
“This is what we will focus on more decisively,” Sewing said, in a marked reversal from Deutsche Bank’s global investment banking expansion over three decades, which ultimately landed it with costly regulatory fines.
Earnings from Germany’s biggest bank fell short of analysts’ expectations in the first quarter, with net income of 120 million euros, which was below the 575 million euros posted in the first quarter of last year, marking a 79 per cent decline in the period.
The bank’s measures, which will result in job losses and higher restructuring costs and include a scaling-back of Deutsche Bank’s business with hedge funds, are the initial product of a review of the investment bank, known internally as Project Colombo, which is likely to lead to further cuts, bankers said.
The bulk of the cuts will focus on the United States and Asia, Deutsche Bank said. It declined to elaborate further but senior executives said job cuts would be “significant” and that recent efforts to trim personnel would be accelerated.
The staff cuts were “painful but regrettably unavoidable to ensure our bank’s competitiveness in the long run”, Sewing, who has a background in retail banking, auditing and risk, said, adding that 2018 restructuring costs are expected to rise to 800 million euros from an earlier target of 500 million.
Deutsche Bank shares were up 0.8 per cent by 0925 GMT.
Turbulent times
The cuts and weaker-than-expected earnings follow weeks of turmoil at Deutsche Bank, including the ouster of former chief executive John Cryan and the departure of senior managers.
Ratings agency Standard & Poor’s said this month it had placed the bank on “credit watch negative,” signalling a potential downgrade, because the change in chief executive could prolong the lender’s restructuring.
But Thursday’s announcements may have a positive impact on the bank’s credit rating, which influences its financing costs, Chief Financial Officer James von Moltke said.
Deutsche Bank said the cuts were expected to have a negative impact on 2018 revenues but improve returns in the medium term.
The bank said it would scale back US rates sales and trading and it would undertake a review of its global equities business “with the expectation of reducing its platform”.
“Commitment to sectors in the US and Asia, in which cross-border activity is limited, will be reduced,” it added.
Overall, the bank expects revenues in its bond trading activities to be flat this year and lower in its equities trading and in advisory business, after witnessing a steep slide in all three divisions in the first quarter.
By contrast, Goldman Sachs said this month that is so confident in its recent business boom, especially in trading, that it will pause share buy-backs and instead use capital to facilitate trades, loans and deals for customers.
All major Wall Street banks have reported bumper first-quarter earnings thanks to a surge in stock trading activity, while Deutsche Bank conceded market share losses.
