Deutsche Bank, Credit Suisse Set to Scale Back Global Ambitions

  • Regulation, interest rates, economy curbing profitability
  • U.S. firms are grabbing greater share of investment bank fees

Deutsche Bank's Cryan Makes First Move of Rebuilding Plan

"The European banks were too long holding onto the past and not realizing that this change is for good -- it’s permanent,” said Oswald Gruebel, a former chief executive officer of both UBS Group AG and Credit Suisse Group AG. “The main reason for reducing global investment banking is that with the capital requirements which the regulators put on these banks, you cannot make any decent return.’’

Deutsche Bank AG announced sweeping management changes on Sunday, less than two weeks before co-CEO John Cryan will present his plans to scale back the trading empire built by his predecessor. On Wednesday, Credit Suisse’s investment bank in favor of wealth management. Barclays Plc, BNP Paribas SA and Standard Chartered Plc are also trimming operations.

Europe’s global lenders are struggling to adapt to rising capital requirements, record-low interest rates and shrinking opportunities for growth. Their retrenchment risks further squeezing lending to economies in the region and handing more business to U.S. competitors, which were quicker to raise capital levels and are benefiting from growth at home.

“Everything that’s being done should have been done years ago,” said Barrington Pitt Miller, an analyst at Janus Capital Group Inc. in Denver. “The European muddle-through scenario has been proven not to be a terribly good one.”

Deutsche Bank and Credit Suisse's share performance vs JPMorgan's

‘Hardest Challenge’

Declining return on equity at Europe's 25 largest publicly traded banks

Deutsche Bank may shed almost 25 percent of the workforce through job cuts and the sale of assets, including its Postbank consumer-lending unit in Germany, a person with knowledge of the matter said in September. Cryan may forgo a dividend this year to conserve capital.

“The capital demands have gone up so much that even if you return to peak profits in your investment bank, that’s going to be a 10 percent return on equity at best for most banks,” said Justin Bisseker, an analyst at Schroders, which oversees about 310 billion pounds ($480 billion). “They’ve got to think about shrinking the business to a point where the ROE is sustainably above the cost of equity.”

Shows the revenue pool split of the top the top nine investment banks

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