Deutsche Bank CEO Reverses Course With Overhaul to Raise Capital

(Bloomberg) -- Deutsche Bank AG Chief Executive Officer John Cryan is reversing course less than two years into his strategy, announcing an overhaul that includes offering 8 billion euros ($8.5 billion) in stock, selling part of the asset management business and reintegrating Postbank.

“It’s a positive step forward that we take the brave step of admitting we were going in the wrong direction,” Cryan said on Sunday. The CEO named two deputies to help him implement the shift, which he said he intends to see through to fruition. “I don’t intend to go anywhere.”

Germany’s largest lender will keep the Postbank consumer division and still aim to reduce total costs to 22 billion euros by 2018, the Frankfurt-based company said. Chief Financial Officer Marcus Schenck, 51, and Christian Sewing, who oversees wealth management and consumer banking, will become co-deputy CEOs. The company will find a new CFO “in due course.”

Cryan, 56, had unsuccessfully sought to sell Postbank to avoid tapping shareholders for extra cash. Deutsche Bank has posted more than 8 billion euros of net losses in the past two years as Cryan, who took over in 2015, settled misconduct investigations and scaled back capital-intensive debt-trading businesses.

“A strong capital base is essential if we’re to succeed in charting this strategy,” Cryan wrote in a letter to employees. The share sale will “remove a major source of uncertainty. That should make us significantly more attractive for our clients.”

The lender said it will sell a minority stake in its asset management unit through an initial public offering in the next two years. That, along with asset disposals at the investment bank, will help raise another 2 billion euros of capital. The bank will propose a dividend in May of 0.19 euros per share.

Management Changes

Jeff Urwin, who led the investment banking division, will retire from the management board after a transition period, the bank said. Cryan will take direct oversight for the U.S. operations, and the firm is recombining its investment banking and trading units after announcing a split of the two in 2015. Schenck will run the combined unit with Garth Ritchie, who currently leads the trading division.

The bank said the share sale would boost its common equity Tier 1 ratio to 14.1 percent and set a new target of “comfortably above” 13 percent. The measure stood at 11.9 percent at the end of 2016, shy of the then-target of 12.5 percent for the end of 2018.

Deutsche Bank plans to issue a prospectus for the share sale on March 20, subject to regulatory approval, and existing shareholders can subscribe to the offering though April 6, according to the statement.

Restructuring Costs

The firm plans to cut more than 2 billion euros of costs from the 24.1 billion euros in adjusted expenses it had last year. The bank will cut another 1 billion euros by 2021. It expects 2 billion euros of severance and restructuring costs, most of which will come over the next two years. The lender plans to place greater focus on corporate clients in investment banking and allocate 65 percent of risk-weighted assets, up from the current 55 percent.

Losses and mounting legal bills raised doubts about Deutsche Bank’s financial strength, which intensified after the U.S. Justice Department in September demanded $14 billion to end an inquiry into mortgage securities that fueled the 2008 financial crisis. Investors were relieved when the settlement in December came at about half that amount. That’s helped almost double the lender’s share price since Sept. 26 and made a potential stock sale more attractive.

Deutsche Bank fell 1.3 percent to close at 19.14 euros in Frankfurt on Friday, and shares traded in the U.S. continued to drop after Bloomberg reported on the plans to raise capital. The stock trades at about half the bank’s tangible book value, below European peers including UBS Group AG, which trades at 1.3 times book, and France’s BNP Paribas SA at 0.9 times book.

--With assistance from Michael J. Moore

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net, Stephen Morris in London at smorris39@bloomberg.net.

To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Chad Thomas, Christian Baumgaertel