Deutsche Bank has announced €6bn loss alongside the reduction of its workforce by 15% and the suspension of its dividends, co-chief executive John Cyran announced.
Deutsche’s losses were largely caused by valuation changes to its assets, with impairment of goodwill adding €5.8bn to the banks losses.
Additionally, the bank spent more than 1bn per quarter throughout the past year on litigation charges, and has set aside a further €1.2bn for litigation cases in Q3.
Another structural challenge, in line with the banks Strategy 20202 remains the target to improve the bank’s capital strength, including a common equity tier 1 capital ratio of at least 12.5% by 2015 and to raise its leverage ratio from 3.6% to at least 4.5% by the end of 2018.
Overall, Deutsche aims to cut €3.8bn by 2018 through restructuring measures. It also announced the suspension of dividends for the 2015-2016 fiscal year.
Co-CEO John Cyran commented on the reforms: “Sadly, this also means closing some of our branches and country locations, and reducing some of our front-office and infrastructure staff too. This is never an easy task, and we will not do so lightly. I promise that we will take great care in this process, moving forward together with our workers’ representatives.”
The reduction of Deutsche’s staff will affect 15000 employees, including 9,000 full-time equivalent positions as well as 6,000 external contractor positions in its Global Technology & Operations infrastructure function.
Moreover, the bank will close onshore operations in Argentina, Chile, Mexico, Peru, Uruguay, Denmark, Finland, Norway, Malta, and New Zealand and move trading activities in Brazil to global and regional hubs.
Helmut Hipper, fund manager at Union Investment, one of the top 20 shareholders at Deutsche Bank comments: “Deutsche Bank needs to put out all the stops to increase its CET1 ratio, hence its decision to suspend dividends for the 2015 / 2016 fiscal year and to extend cost cutting measures as well as the reduction of risky assets beyond the initial plans. The fact that Deutsche now aims at a CET1 ratio of 12.5% (until now the target was set at 11%), allows the conclusion that it will need an additional buffer.”
The interesting question remains whether the planned productivity increase over the next couple of years is feasible, given the drastic reduction of assets and the extent of cost cutting measures. We haven’t seen a clear answer to that yet, which is why capital markets remain sceptical. It would be a positive signal if Deutsche Bank would exclude a capital increase from its strategic plan” Hipper adds.
“On the bright side, it should be noted that Cyran aims to increase the return on tangible equity above 10% now until 2018, rather than in 2020.”
Expectations have built up so much in advance and now there is a certain disappointment. Nevertheless, we believe that share prices will stabilise because the appointment of Cyran is still connected with positive expectations” he concludes.