Next year is Deutsche Bank’s 150th birthday. What might have been a celebration is shaping up to be more of a wake.
With its finances and strategy in disarray and 95 per cent of its market value erased, the German bank’s executives are putting the finishing touches on a painful restructuring plan they hope will halt the company’s years-long downward spiral.
The plan, which could be announced next week, calls for the potential elimination of up to 20,000 jobs worldwide and largely shutting entire divisions of the company’s ailing Wall Street operations, according to people briefed on the matter. Deutsche Bank also is likely to announce the closing of large portions of its struggling German retail-banking business.
The public unveiling of turnaround plans has become an almost-annual rite for Deutsche Bank. Since 2012, the bank has cycled through five chief executives, with each taking at least one stab – and often more than one – at fixing its financial and cultural problems. Far-reaching strategic shifts, job cuts and geographic retreats have been announced, only to prove underwhelming or get quietly shelved.
This time, executives hope that the restructuring will be sufficiently radical to overcome the doubts of investors, customers and employees who worry that Deutsche Bank lacks a viable plan to overcome its weak finances and bruised reputation. Those concerns – as well as a swirl of government investigations and intense scrutiny of the bank’s long-standing relationship with President Donald Trump and his family – this month pushed Deutsche Bank’s shares to their lowest level ever.
The moves envisioned by top executives would partly undo a series of acquisitions made over two decades, when a succession of growth-hungry Deutsche Bank leaders transformed the institution from a provincial financier of German companies and infrastructure projects into a risk-loving global colossus. And the cuts would bring down the curtain on Deutsche Bank’s ill-fated foray onto Wall Street.
“Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability,” Kerrie McHugh, a bank spokeswoman, said in a statement Friday. “We will update all stakeholders if and when required.”
Executives are still ironing out the details of the plans and their financial implications. The elimination of 20,000 jobs, reported earlier Friday by The Wall Street Journal, would represent more than one-fifth of the company’s global work force of about 91,000.
The plans include shutting most of the bank’s money-losing equities division, which helps clients sell and trade shares, said the people briefed on the plans, who weren’t authorized to discuss the details publicly. That move would lead to the elimination of hundreds of jobs in New York, London and elsewhere – including those of traders, salespeople, research analysts and support staff.
Other investment-banking divisions also could be slashed, including the bond-trading business and teams that specialize in selling and trading various types of derivatives. That retreat is important symbolically as well as financially: The German bank’s expansion onto Wall Street in the 1990s was powered in large part by its dominance in derivatives trading, in part through the 1999 acquisition of Bankers Trust, a deeply troubled U.S. company.
Deutsche Bank is unlikely to fully shut down its investment bank or its U.S. operations. Among other things, the bank plans to keep open lucrative businesses that cater to the ultrarich and that help companies whisk money to outposts around the world.
In Germany, Deutsche Bank’s vast consumer-banking business has been a financial drag, weighed down by the crowded market’s slim or non-existent profit margins. Executives are planning to announce dramatic reductions in that business, including by closing bank branches and cutting jobs.
Previous bank leaders – including former co-CEO Anshu Jain – wanted to exit the business but were rebuffed by German executives, board members and political and labour leaders.
Now, though, times have changed. government-brokered talks to merge Deutsche Bank with the country’s second-largest lender, Commerzbank, collapsed this spring, which amplified the pressure on chief executive Christian Sewing to pursue aggressive options to stabilize Deutsche Bank.
Paring down its German retail-banking business is likely to cause a public outcry in Germany. But some of the bank’s top shareholders, including Cerberus, are supportive. It doesn’t hurt that, unlike most of Deutsche Bank’s chief executives this century, Mr. Sewing – who joined the company out of high school – is German.
One unknown is the future of Paul Achleitner, who has been the chairman of Deutsche Bank’s supervisory board since 2012 and is blamed by some investors and executives for the bank’s fall from grace.
In a rare piece of good news for the bank, the U.S. Federal Reserve said Thursday that Deutsche Bank passed the central bank’s “stress tests” that examine its capacity to weather another financial crisis. After reaching their lowest point earlier this month, Deutsche Bank shares have rebounded slightly, including rising about 1 per cent on Friday.
Deutsche Bank had planned to present investors, employees and the public with the latest turnaround plan about July 24, when the company is scheduled to report its quarterly results. But executives have accelerated the timing to end the uncertainty about what is in store.
In the meantime, Deutsche Bank employees in New York and Jacksonville, Fla., have been gossiping about whether the bank is going to pull out of the United States entirely. Some have brought boxes to work in case they have to quickly empty out their desks.