- Company will exit 10 countries including Mexico, Norway
- Dividend will be suspended for two years to improve capital
Deutsche Bank AG said it will shrink the workforce by about 26,000 people by 2018 as co-Chief Executive Officer John Cryan seeks to improve returns. The shares fell.
The lender will cut about 9,000 jobs on a net basis, almost 10 percent of staff it expects to have at end of the year, and others will leave the company as businesses are sold, Deutsche Bank said on Thursday. The bank will close operations in 10 countries including Mexico, Norway and New Zealand, and move trading businesses from Brazil to global and regional hubs, and reduce the number of investment banking clients.
Cryan, who took over from Anshu Jain in July, is under pressure to lower costs, boost capital buffers and reverse a share slump that has made Deutsche Bank the worst-valued stock among global lenders. His strategy for the firm that includes selling a consumer bank unit and shrinking the investment bank after some investors criticized a similar plan his predecessor proposed in April.
"Deutsche Bank does not have a strategy problem,” Cryan told reporters in Frankfurt. “We know exactly where we want to go. However, Deutsche Bank has faced a grave problem for many years in implementing this strategy. In the last two decades, many strategies and targets were announced, but rarely were they consequently realized."
The shares fell as much as 6.9 percent and were 5.5 percent lower at 25.96 euros as of 11:22 a.m. in Frankfurt.
“The announcement alone is not enough, they have to deliver,” said Peter Braendle, who manages about 400 million euros ($438 million) in Swisscanto European equity funds at Zuercher Kantonalbank, and is underweight in Deutsche Bank. “These targets are appropriate and necessary. It’s definitely going in the right direction, that Deutsche Bank is rightsizing its investment bank.”
Within the investment bank, the firm will reduce the number of clients by about half, especially in “high-risk” countries. About 30 clients produce 80 percent of revenues in these business divisions, the bank.
Within securities firms, “we’re constantly saying we must focus on the clients who provide us the biggest part of their wallets and therefore try and avoid those who just give us little bits and pieces of business around the edge and effectively are just not profitable,” said Christopher Wheeler, an analyst at Atlantic Equities LLP in London.
“So it’s a big number but again it’s part of what is a very very major overhaul.”
Deutsche Bank is seeking to cut gross costs by 3.8 billion euros, which compares with the 3.5 billion euros that Jain was targeting. The bank plans to scrap the dividend for two years as it targets a common equity Tier 1 ratio of at least 12.5 percent from the end of 2018.
“The biggest disappointment is the loss of the dividend for not one but two years,” said Boris Boehm, who helps manage about 2.3 billion euros including Deutsche Bank shares at Aramea Asset in Hamburg.
Germany’s biggest lender posted a loss of 6 billion euros for the third quarter as stricter capital requirements reduce the value of its investment bank and the firm set aside more money for legal costs.
In addition to cutting full-time employees, the bank plans to eliminate about 6,000 external jobs which represent about 20 percent of contractors, Chief Financial Officer Marcus Schenck told reporters.
What Cryan is doing here is “is he’s telling his clients, telling the market that this is a long job,” said Wheeler.