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Here Are the Key Highlights of Deutsche Bank’s Big Restructuring

Here Are the Key Highlights of Deutsche Bank’s Big Restructuring

(Bloomberg) -- Deutsche Bank AG announced a sweeping turnaround plan that will transform Germany’s biggest bank, with Chief Executive Officer Christian Sewing radically shrinking and reshaping its global operations.

Among the most dramatic changes in the overhaul, announced Sunday, is Deutsche Bank’s planned exit from the equities sales and trading business. The bank also will cut back other operations, slash costs and reduce risk.

Here’s a look at the plan:

Here Are the Key Highlights of Deutsche Bank’s Big Restructuring

Investment Bank

While getting out of equity sales and trading, Deutsche Bank said it will retain a “focused” equity capital markets operation and “resize” its fixed-income operations -- its rates business in particular. The bank will cut its risk-weighted assets allocated to the businesses by about 40%. Deutsche Bank wants to focus on its “traditional strengths” of financing, advisory, fixed income and currencies. Following the restructuring, almost 75% of investment-banking revenue will come from businesses where it has a Top 5 market position, Deutsche Bank said.

Non-Core Unit

Deutsche Bank is creating a new non-core unit to handle the wind-down of non-strategic assets so it can focus on its primary businesses. The holdings will be moved to a “capital-release unit.” The holdings and related businesses being moved to the unit represented 74 billion euros ($83 billion) of risk-weighted assets and 288 billion euros of leveraged exposure at the end of last year.

Financial Targets

The restructuring will cut adjusted costs by 6 billion euros, to 17 billion euros, in 2022, with Sewing targeting a cost-to-income ratio of 70% that year. Deutsche Bank will slash its workforce by about 18,000 employees, to roughly 74,000 following the cuts. The bank is also targeting a return on tangible equity of 8% by 2022, up from a previous aim of 4%. The overhaul is intended to free up 5 billion euros of capital for share buybacks and dividends from 2022.

Paying the Bill

The restructuring comes with a huge bill. Deutsche Bank expects one-time charges to total 7.4 billion euros by 2022. The vast majority -- about 5.1 billion euros -- will come this year, with about 3 billion euros in the second quarter alone. That will mean a loss this quarter, to the tune of about 500 million euros before income taxes and a net loss of 2.8 billion euros. Without those charges, Deutsche Bank is expecting second-quarter earnings of 400 million euros before income taxes, and profit of 120 million euros after taxes.

New Corporate Bank

As part of the restructuring, Deutsche Bank will form a fourth business division, in addition to its investment bank, private bank and asset-management unit, or DWS. The new corporate bank -- which will be the main hub for corporate and commercial clients -- is a mix of the global transaction bank, which moves money around for corporations, and German commercial banking. Some 1 million commercial and corporate clients from the private and commercial bank in Germany will be part of the new division.

Management Changes

The management changes accompanying the restructuring are myriad. Investment-bank boss Garth Ritchie, Chief Regulatory Officer Sylvie Matherat and retail head Frank Strauss are all leaving the bank.

Here Are the Key Highlights of Deutsche Bank’s Big Restructuring

Christiana Riley, Bernd Leukert and Stefan Simon are joining the management board, with Riley taking over responsibility for the Americas, Leukert in charge of digitalization, data and innovation, and Simon becoming chief administrative officer with responsibility for regulatory affairs and legal issues. Riley has been with Deutsche Bank since 2006, and Simon on its supervisory board for almost three years, while Leukert is joining from software company SAP SE.

New Responsibilities

Among current board members, Sewing is taking on responsibility for the corporate and investment banks, President Karl von Rohr will oversee the private bank and asset management while keeping regional responsibility for Germany, and Chief Operating Officer Frank Kuhnke will oversee the newly formed capital-release unit and the Europe, Middle East and Africa region.

Here Are the Key Highlights of Deutsche Bank’s Big Restructuring

Chief Risk Officer Stuart Lewis will assume responsibility for compliance and the anti-financial-crime unit as well as the U.K. and Ireland. James von Moltke will remain chief financial officer and Werner Steinmueller will continue as CEO of the Asia-Pacific region. Stefan Hoops will be in charge of the new corporate bank, reporting to Sewing, and Mark Fedorcik will head up corporate finance and advisory.

--With assistance from Sonali Basak.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub, Dale Crofts

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