Christian Sewing promised the deepest shake-up of Deutsche Bank in decades. On July 7, 2019, the chief executive laid out a plan to revive the ailing German lender by cutting it back, hard.
The bank would stop trading shares altogether and pare down its bond trading. It planned to trim costs by €6bn, roughly $6.7bn, each year (about one quarter of the whole) by 2022, and to shed eighteen thousand jobs, around one in five of the payroll. Sewing’s plan took five months to prepare, a stretch in which Deutsche also weighed and then dropped a merger with its neighbour Commerzbank.
The bank was rebuilt around four lines of business. A corporate bank would sit at the centre, handling cash management, trade finance and foreign exchange. An investment bank would stay, but pointed at corporate clients rather than Wall Street. Deutsche also kept Germany’s biggest retail bank and nearly 80% of the asset manager DWS.
Some €74bn of risk-weighted assets were moved into a separate “capital-release unit.” Sewing flinched at calling it a bad bank, though the label stuck. Setting it up would cost €7.4bn, with €5.1bn of that falling in the current year and pushing Deutsche to a fourth annual loss in five years. Shareholders would get no dividend this year or next.
The market was not convinced. Shares fell as much as 7.3% on July 8 and dropped again the next day. “We kept too many options open,” Sewing told journalists.
By 2022 he expected a healthier bank, one returning 8 percent on tangible equity and paying out as much as €5bn to shareholders. Even then, the target was modest: 8 percent is the bare minimum investors look for.
The cuts were a belated reckoning with a decade of trouble. Deutsche spent years after the 2008 financial crisis hoping it could again match Wall Street’s giants across investment banking. That ambition died with the July plan.
Sources
- Deutsche Bank CEO’s Plan to Shrink the Lender Back to Glory – Bloomberg
- Deutsche Bank shrinks and restructures
