Cryan May Aim for $2.8 Billion in Net Cost Cuts, JPMorgan Saysby
Deutsche Bank co-CEO will present his strategy in October
JPMorgan analysts expect deeper asset cuts at investment bank
Deutsche Bank AG co-Chief Executive Officer John Cryan will probably cut jobs and close branches to succeed where his predecessors failed and reduce expenses by a net 2.5 billion euros ($2.8 billion), according to analysts at JPMorgan Chase & Co.
Eliminating 10,000 jobs could save a net 1.3 billion euros in compensation costs while eliminating one third of an estimated 30,000 external consultants and closing about 200 branches would help cut expenses by 1.2 billion euros, the analysts wrote in a report Monday.
Cryan, 54, who took over from Anshu Jain in July, is seeking ways to boost capital and shore up profitability as Europe’s biggest investment bank grapples with mounting litigation costs. The company’s efficiency plan has thus far failed to achieve a net reduction in expenses as spending on regulatory and compliance requirements wiped Deutsche Bank’s savings.
“Deutsche Bank’s cost management has been poor historically,” JPMorgan analysts Kian Abouhossein and Amit Ranjan, who have an overweight recommendation on the stock, wrote in the report. “Management should focus on creating shareholder value by growing retained earnings and the key is to cut costs.”
Deutsche Bank’s expenses amounted to 27.7 billion euros last year, or 87 percent of its revenue, company filings show. The lender said in April that it would cut about 3.5 billion euros of costs on a gross basis to lower adjusted costs by about 15 percent by 2020.
Cryan, a former chief financial officer of UBS Group AG, called Deutsche Bank’s costs “unacceptably high” when the Frankfurt-based company reported second-quarter earnings at the end of July. He is scheduled to present details of the company’s strategy next month.
The bank is considering cutting 8,000 jobs, in addition to those to be eliminated through the sale of Deutsche Postbank AG, one of its consumer bank units, and will make a final decision in October, a person with knowledge of the matter said this month.
Deutsche Bank should consider selling European consumer-banking businesses outside Germany which aren’t sufficiently profitable, the analysts said.
Cryan may cut another 50 billion euros of leverage assets at Deutsche Bank’s investment bank on top of a reduction announced in April, while the bank probably won’t sell stock to boost capital, the analysts said.