Deutsche Bank to scale back investment bank as profits slump

27 April, 2018, 01:19 | Author: Corey Lynch
  • The bank has had a management shake-up too with a new chief executive

Deutsche Bank will be scaling back operations in bond sales and equities trading, particularly in the U.S. and Asia. And now a new power has emerged ready to bring order to the Deutsche Bank universe, no matter how much carnage and chaos it takes to instill it. His plans then, which included thousands of job cuts, came after his predecessor Anshu Jain's attempts to turn the bank's fortunes around.

Just weeks after ousting chief executive John Cryan and promoting retail banking head Christian Sewing to the top job, Deutsche has outlined a three-step plan to pull back from USA rates trading, reduce corporate finance coverage in favour of European clients and put its equities division under review.

"These cutbacks will be painful, but they are unfortunately unavoidable if we want to be sustainably profitable in the best interests of our bank, our clients and our investors", Sewing said in a statement. "There is no time to lose as the current returns for our shareholders are unacceptable".

The company did not provide numbers depicting as to how deep the cuts to the investment bank would be. "The focus right now is on execution, making sure we move quickly to adjust the businesses to that core perimeter". It joined the ranks of global securities firms with the 1989 purchase of British merchant bank Morgan Grenfell and a decade later purchased Bankers Trust, a NY derivatives house.

Paul Achleitner, now Deutsche Bank's supervisory board chairman, advised it on the purchase while at Goldman Sachs Group Inc. With the review still ongoing, Achleitner was secretly seeking replacements for Cryan while the CEO fought to keep his job. Deutsche Bank, by contrast, said an "underperformance" in equity derivatives across Europe, the Middle East and Africa contributed to a 21 percent tumble in equities revenue to 543 million euros.

Marcus Schenck, the former co-head of investment banking who had been a strong internal contender to replace Cryan, left amid the recent management shake-up. Sewing has called the target "non-negotiable" in a memo to staff sent earlier in April. HSBC downgraded shares of Deutsche Bank from a "buy" rating to a "hold" rating in a research report on Monday, January 8th. The division saw pre-tax profits plunge 74% year-on-year to €205m.

Today's announcements may determine the bank's credit rating, which influences its financing costs.

"Delivery is key from here", said Guy de Blonay, a fund manager at Jupiter Asset Management. Business focused on just the United States or Asia would be reduced. Sales and trading revenues fell 17% to €2.4bn, with big drops across both equities and fixed income.



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