How Many Turnaround Plans Does It Take to Fix Deutsche Bank?
(Bloomberg) -- Deutsche Bank AG’s trading performance these days may not be dizzying, but you can’t say that about its strategy announcements.
Christian Sewing, who took over as chief executive officer barely two weeks ago, wants to scale back U.S. rates sales and trading, reduce the corporate finance business in the U.S. and Asia, and make cuts to the global equities business. It’s the fourth turnaround plan for Europe’s largest investment bank in the past three years.
Here are three charts showing how the business has fared as management rushes from one strategy update to the next.
Revenue at the Frankfurt-based lender has been declining steadily since it announced its first attempt to shrink the investment bank in April 2015, under then-CEOs Anshu Jain and Juergen Fitschen. John Cryan, who took over shortly after, followed up with his own strategy announcement in October of that year, only to revise it in March 2017 when he raised capital to replenish reserves depleted by billions of dollars in misconduct fines.
While Cryan at the time pledged to return the bank to growth, revenue kept shrinking. Deutsche Bank on Thursday reported the weakest first-quarter top line since the start of 2008, when the world was plunging into a financial crisis. For the full year, the company doesn’t expect an increase either as Sewing steps up cuts to the investment bank.
Much of the revenue decline has come from the trading business, which has lost ground to large Wall Street firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. To some extent, the shrinking had been intentional, but when the lender’s legal woes came to a head in late 2016, some clients scaled back business with the bank because of concerns over its financial strength.
The bank says that while shrinking its U.S. presence will have a negative effect, debt trading revenue will still be “essentially flat” this year compared to last. Cuts to the equities business, including a division which caters to hedge funds, will probably cause revenue from dealing in stocks to fall this year, according to the bank.
A key piece of Sewing’s new plan is to cut back in U.S. investment banking, where the German lender has been unable in many areas to compete profitably with the large Wall Street banks. The Americas account for more than a third of the unit’s revenue, with most of that coming from the U.S., so any cuts there will have a significant impact on the rest of the company.
The bank has already begun cutting staff, firing 400 U.S.-based employees this week. The pace will accelerate and eventually result in more than 1,000 cuts, according to a person familiar with the matter. Andrew Coombs, an analyst at Citigroup Inc., says while it makes sense to focus on more profitable businesses, the new measures “could also have unintended consequences” for the rest of Deutsche Bank’s operations.
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