Deutsche Bank shifts focus back to Europe

FRANKFURT: Germany’s biggest lender Deutsche Bank AG announced yesterday deep cuts to its flagship investment banking division and a new focus on Europe, hoping to drag itself out of years of losses as it reported falling profit in the first quarter.

“In the past, we took too long and we retreated (from) decisions which were taken and were not executed,” newly-installed chief executive Christian Sewing, 47, said in a telephone conference.

“From now on, Deutsche Bank must demonstrate a ‘clear vision’ and ‘discipline’ to see change through among top managers,’’ he declared.

“There is no time to lose as the current returns for our shareholders are not acceptable,” Sewing added.

He takes the reins less burdened by lingering fallout from the years leading up to the financial crisis — when Deutsche Bank strained to compete with US-based investment banking titans — that dogged the leadership of former boss John Cryan.

The crisis-fighting British chief extricated the bank from painful legal hangovers but failed to steer it back to profitability, reporting three annual losses in a row.

First in line for reform under Sewing’s reign is the cherished corporate and investment bank.

In corporate banking, Deutsche Bank plans to slash its commitment to the United States and Asia, saying it would address clients “whose activities are closely aligned with the strengths of the German and European economies”.

Meanwhile it will also withdraw from some trading in shares and services offered to investment firms.

Sewing warned there would be “painful but regrettably unavoidable” job losses “to ensure our bank’s competitiveness in the long run”, while declining to name a number of departures.

The corporate and investment bank accounted for more than half of Deutsche Bank’s revenue in the first quarter.

But executives hope to shift the ratio so income from “more stable” sources like the retail and commercial bank and the asset management division — floated on the stock market earlier this year — make up 65% of revenue.

A modest ambition according to calculations from business daily Handelsblatt, which reckoned that they already made up 62% over the full year in 2017.

Other items on Deutsche Bank’s restructuring list include fully integrating subsidiary Postbank into its German retail banking operations and further reducing its massive holdings of financial derivatives.

Finance chief James von Moltke lifted his estimate for the total cost of the changes to €800 million ($974 million), from €500 million previously.

Sewing promised to bring back “the virtues on which the company was built nearly 150 years ago” — “clarity and vision, disciplined execution and pride to work at a bank that takes bold moves.”

But boosting morale is a tricky proposition at a bank which booked net profit of just €120 million in the first quarter, down 79% year-on-year.

The bank’s pre-tax profit fell 51%, to €432 million, on the back of revenues down 5% at €7 billion.

Von Moltke said higher contributions to Europe’s Single Resolution Fund, created to help wind up failing lenders, and increased IT costs weighed on the bottom line, while unfavourable exchange rate movements squeezed revenues.

Executives did not offer any forecast for the bank’s performance over the full year, saying only they were sticking to a target to keep annual costs below €23 billion.

Investors gave a muted welcome to Deutsche’s new direction, lifting the bank’s share price by 0.4% around 11.25 a.m. local time to €12.04 — making it one of the top performers on the DAX index of blue-chip German shares.