Deutsche Bank to Exit Global Equities, Trading Business
German bank will cut 18,000 jobs by 2022 and will focus on serving European companies and retail-banking customers, including wealthy clients
Deutsche Bank AG DB 2.82% moved Sunday to gut its global ambitions as a trading powerhouse, cutting 18,000 jobs and retreating to its German banking roots in a radical overhaul to try to save itself after years of decline.
Deutsche Bank’s restructuring plan reorders the bank’s executive ranks under Chief Executive Christian Sewing, with several senior officials leaving and business lines redrawn for the third time in four years.
The moves are a dramatic capitulation 20 years after Deutsche Bank acquired Bankers Trust in the U.S., enabling a rising profile in bond trading and other areas that helped it compete with Goldman Sachs Group Inc. and other big U.S. investment banks on the global stage.
“What we have announced today is nothing less than a fundamental rebuilding of Deutsche Bank,” Mr. Sewing wrote in a message to staff, adding that the changes “will bring us closer to our core strength, our DNA.”
The German lender’s struggles have been symptomatic of a broader malaise among Europe’s investment banks. Struggling with low interest rates and political uncertainty, Europeans are dominated by U.S. rivals on their home turf.
Some European banking woes stretch back to the global financial crisis, after which U.S. banks were forced to clean up quickly and recapitalize their balance sheets. European banks staved off that bitter medicine for years. Rapidly shrinking deal volumes and market volatility have compounded the problem. Bankers say companies are skittish about doing deals amid concerns over the European Union’s economic outlook, Britain’s exit from the EU and the trade war between the U.S. and China.
Some European banks, Deutsche Bank most prominently, have tried to stanch the bleeding by exiting unprofitable business lines, pulling back from certain regions and focusing on businesses they hope will juice them back to more stable profits.
Deutsche Bank’s investment bank—long its dominant revenue engine—will be dramatically shrunk and reorganized with parts of it being put up for sale. Deutsche Bank is abandoning efforts to revive trading businesses that struggled to compete with stronger rivals.
The bank said on Sunday it would exit its global-equities sales-and-trading business completely, but will continue offering some services, such as share underwriting, to clients.
The efforts to peddle chunks of functioning operations reflect a stark turn for the European lender that for years has had the biggest global investment-banking ambitions.
“The markets have needed decisiveness and no longer incrementalism from Deutsche Bank. I believe Sewing is starting to express that,” said Gregg Hymowitz, chief executive of EnTrustPermal, a New York firm with money invested in Deutsche Bank. “There can be no sacred cows.”
The German bank said it expects to post a net loss of €2.8 billion ($3.14 billion) as a result of restructuring-related costs when it reports second-quarter results on July 24. It plans about 18,000 global job cuts by 2022. That represents about one out of five current full-time employees.
The lender, whose share price has been near a record low for months, will focus on serving European companies and retail-banking customers, including wealthy clients. It is aiming to strengthen businesses like asset management, currency trading, corporate-cash management and trade finance that support its narrower focus.
But it is trying to grow by shrinking first. Executives are asking investors to believe that their turnaround plans are different, and more attainable, this time.
Deutsche Bank said it plans to suspend shareholder dividends for 2019 and 2020. Executives are hoping for investors’ faith that they will generate stronger returns, saying they expect to return some €5 billion to shareholders through dividends and buybacks starting in 2022.
The lender is taking a knife to its roughly 91,000-employee global workforce as it tries to reduce billions of dollars in costs while preserving enough revenue and capital to pay for the restructuring without asking shareholders for more money upfront.
A string of chief executives has grappled with trying to rebalance the lender to reduce its dependence on trading.
The efforts have fallen short, though, with revenues declining at a faster pace than the bank can hive off expenses.
The dramatic reshaping of Deutsche Bank comes after shallower cuts and other options—including a potential merger with smaller rival Commerzbank AG, a prospect that fell apart in April—failed to reinvigorate the 149-year-old German lender.
The restructuring plans sharply divided top Deutsche Bank executives over the pace of job reductions and where to cut first: higher earners like traders, bankers and salespeople or lower-salaried support employees, according to people familiar with discussions in recent weeks. Deutsche Bank said Sunday it will take a cumulative total of €7.4 billion in restructuring charges over the course of several years, including €3 billion in the second quarter.
The bank is creating a new unit, a so-called bad bank, to house unwanted positions and operations earmarked for sale or wind-down, plans that were reported by The Wall Street Journal in April. The “capital release unit” will initially hold about €288 billion worth of assets, or about €74 billion measured by risk, the bank said.
Deutsche Bank faces major challenges in unloading assets and shedding the stubborn costs of unwanted operations. The bank has struggled for years to downsize businesses without still carrying the burden of costs associated with them, executives have said.
For example, the bank has more than €1 billion in costs currently attached to its equities business that will have to be allocated elsewhere as it winds down most of that business, according to people familiar with nonpublic details of the business. One central hurdle is to chip away at those costs so they don’t sink the performance of other businesses, the people said.
Deutsche Bank said it has reached a “preliminary agreement” with BNP Paribas SA that would see the French bank take over relationships with some hedge-fund clients and potentially also take some of Deutsche Bank’s related trading technology and staff. The banks didn’t provide details; Deutsche Bank said no deal is final.