Deutsche Bank Said to Target Trading Unit Return Above 10%

  • Bank is fifth-biggest securities trader by revenue globally
  • Trading chief cites importance of having motivated employees

Garth Ritchie, who leads Deutsche Bank AG’s trading business, told staff the firm is targeting a profitability target of more than 10 percent for the unit as Europe’s largest investment bank reorganizes in a bid to boost returns.

Ritchie, 47, told staff in a town hall meeting this month that he wants the division to be the “most sustainably profitable global markets business” by boosting revenue and trimming costs, according to a note published on the bank’s intranet, which summarized his remarks. 

The note didn’t provide a timeframe for the targets, which won’t be directly comparable with the unit’s disclosed performance until it starts to break out figures for the unit in April. A Deutsche Bank spokesman in London declined to comment on the note, which was seen by Bloomberg.

Since taking over last year, co-Chief Executive Officer John Cryan has been shrinking the securities unit, the bank’s biggest source of revenue, to focus on the most profitable businesses as stricter capital rules and costs for past misconduct eat into returns. The lender, which split the markets division from investment banking as part of the overhaul, missed profitability goals it had set for the combined unit in 2015.

‘Attractive Return’

“We believe Deutsche Bank can eventually reach an attractive return at its investment bank,” said Neil Smith, an analyst at Bankhaus Lampe who recommends investors buy the shares. “The question is how large is it going to be, as lower-return businesses won’t make the grade under new regulation.”

Deutsche Bank is also targeting a return on tangible equity, a measure of profitability, of more than 10 percent by 2018 at a group level. Last year, that measure was negative at the combined investment banking and trading unit as it posted a loss, its filings show.

Deutsche Bank will focus on serving “target clients” in the markets business, with about 500 customers generating about 80 percent of the division’s revenue, Ritchie said.

Frankfurt-based Deutsche Bank said in October that it would cut its client list at the global markets and corporate and investment bank units by as much as half. About 30 percent of clients generate about 80 percent of revenue at the two divisions, the company said at the time, without disclosing the number of customers.

Staff Motivation

Deutsche Bank’s $11.6 billion of revenue from trading debt and equities last year put it in fifth place behind Morgan Stanley, Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., which held the top spot, data compiled by Bloomberg show.

The stock has fallen 33 percent this year, outpacing the 23 percent decline of the 47-member Stoxx 600 Banks Index, and making Deutsche Bank the worst-valued global lender.

In the note, Ritchie also cited “the importance of having motivated staff.” Cryan addressed that theme in comments to reporters last month, saying the share price tends to drive morale, which in turn drives motivation and performance.

“We need to incentivize appropriately in line with our collective objectives and encourage a culture of strong teamwork, ownership and empowerment,” Ritchie was cited as saying in the note.

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