Issue of the week: bloodbath at Deutsche Bank
Germany’s flagship bank is in big trouble. Are drastic plans to revive it a case of too little, too late?
When Deutsche Bank’s boss, Christian Sewing, attended a conference for bond investors in London last week, he invited a client to give a presentation. The choice was significant, said Olaf Storbeck in the FT. It wasn’t “a hedge fund manager or a freewheeling real estate developer”, but the head of a big German supplier of “ball bearings and car parts”. The message could not have been clearer. After more than two decades of attempting to become “a European rival to Wall Street titans such as Goldman Sachs”, Deutsche Bank is beating a retreat. Sewing has concluded that the only way to revive Germany’s troubled flagship lender is to return “to its roots” as a bank for large corporates. “The transformation will not be easy”: 18,000 jobs, or a fifth of the workforce, will be cut in this latest restructuring – with the “brunt” of the “bloodbath” born by traders, said Jim Armitage in the London Evening Standard. Deutsche’s equities trading arm was a big employer in the Square Mile. The bank’s brutal dismantling won’t do much for the City’s already battered morale.
Pictures of laid-off staff with their belongings in boxes are reminiscent of the collapse of Lehman Brothers in 2008, and “will raise fears that we are staring down the barrel of a new financial crisis”, said Ben Wright in The Daily Telegraph. The scale of the numbers is certainly “daunting”: the Frankfurt-based institution is creating a “bad bank” to house some s74bn of assets. But at least it isn’t insolvent. In fact, this isn’t “the start of the next financial crisis” so much as “the tail end of the last”. When the crisis hit in 2008, Deutsche proudly sidestepped the fate of stricken rivals like RBS and avoided a state bailout, but it seems to have wasted an entire decade putting off the necessary restructuring. Now a drab and uneasy future awaits, “toiling away in the barren wasteland” of German retail and corporate banking.
What’s sad for 18,000 workers is “good for investors” who have seen their shares fall 80% in ten years – even as the bank’s supposed stars greased their own pockets, said Tom Braithwaite in the FT. “Whatever its meagre return on equity, Deutsche usually made money for someone” – but it was often “top staff, rather than shareholders”. Critics this week attacked the size of some severance packages. The bank is now “a national embarrassment”, said Nils Pratley in The Guardian – it has even been overtaken by other banks in Europe. The open question now is whether it has “seen the light” too late. “Job cuts are the easy part. The lesson from elsewhere is that it takes about a decade to repair a bank as broken as Deutsche.” Get ready for a painful journey ahead.