Deutsche Bank to lay off 18,000 Asia-Pacific jobs as it exits equity markets 08 July 2019

Germany’s struggling flagship lender will exit global equities business and scale back its investment banking operations, in what represents a significant strategic transformation and restructuring. 

The bank expects a 2.8 billion euro ($3.1 billion) net loss in the second quarter as a result of restructuring charges.

Deutsche Bank’s management board announced a series of measures to restructure the bank’s operations. The bank will exit its equities sales and trading business, while retaining a focused equity capital markets operation. In addition, the bank plans to resize its fixed income operations in particular its rates business and will accelerate the wind-down of its existing non-strategic portfolio. In aggregate, Deutsche Bank said it planned to reduce risk-weighted assets currently allocated to these businesses by approximately 40 per cent.

The bank will create a new Capital Release Unit to manage the efficient wind-down of the assets related to business activities, which are being exited or reduced. These assets and businesses represented EUR 74 billion ($84 billion)of risk-weighted assets and EUR 288 billion ($323 billion) of leverage exposure, as of 31 December 2018.

These actions are designed to allow Deutsche Bank to focus on and invest in its core, market leading businesses of corporate banking, financing, foreign exchange, origination and advisory, private banking, and asset management.

Deutsche Bank will implement a cost reduction programme designed to reduce adjusted costs to EUR 17 billion ($19 billion) in 2022 and is targeting a cost income ratio of 70 per cent in that year.

To facilitate its restructuring, Deutsche Bank expects to take approximately EUR 3 billion ($3.4 billion) of aggregate charges in the second quarter of 2019, of which approximately EUR 0.2 billion ($0.22 billion) would impact Common Equity Tier 1 capital. These charges include a deferred tax asset write-down of approximately EUR 2 billion ($2.25 billion) and impairments of approximately EUR 0.9 billion ($1.1 billion). 

Deutsche Bank expects additional restructuring charges in the second half of 2019 and subsequent years. In aggregate, Deutsche Bank currently expects cumulative charges of EUR 7.4 billion ($8.31 billion) by the end of 2022.

Deutsche Bank management intends to fund its transformation from its existing resources without requiring additional capital. This reflects the bank’s current strong capital position as well as management’s confidence in the high quality and low risk nature of the assets, which it is exiting. In connection with these decisions, the management board intends to recommend no common equity dividend be paid for the financial years 2019 and 2020. The bank expects to have capacity for payments on additional tier 1 securities throughout the transformation phase.

After consultation with the bank’s regulators, the bank now intends to operate with a minimum CET1 ratio of 12.5 per cent going forward. As a result of the significant deleveraging actions, the bank targets a fully-loaded leverage ratio of 4.5 per cent by the end of 2020 rising to approximately 5 per cent by 2022.

Deutsche Bank expects to report a second quarter 2019 loss (Including the charges related to the restructuring described above) before income taxes of approximately EUR 500 million ($500 million) and a net loss of EUR 2.8 billion ($3.14). Excluding these charges, Deutsche Bank expects to report second quarter 2019 income before income taxes of approximately EUR 400 million ($450million) and net profit of EUR 120 million ($135 million). Results reflect revenues of EUR 6.2 billion ($& billion) with noninterest expenses of EUR 5.6 billion ($6.29 billion) and adjusted costs of EUR 5.35 billion ($6.0 billion).

Deutsche Bank was founded almost 150 years ago as a bank that serves German and European companies worldwide, that provides a global network and that paves the road to Europe for international companies and investors. Going forward, the bank proposes to also serve the corporate and commercial clients of Deutsche Bank and Postbank in the home market. This division is focused on midcap clients, family-owned companies and multinational corporates. It will hold deposits of more than 200 billion euros and process financial transactions with a value of one billion euros every day.

Post restructuring Deutsche Bank expects to achieve a post-tax return on tangible equity (RoTE) of 8 per cent by 2022, which it says is absolutely vital for it to remain competitive in the long term.