Deutsche Bank AG unveiled a radical overhaul that will see the lender exit its equities business, post a €2.8 billion ($3.1 billion) second-quarter loss and cut the workforce by a fifth to reverse a slide in profitability.
Chief Executive Officer Christian Sewing will shelve the dividend this year and next and take restructuring charges of €7.4 billion through 2022 to pay for an overhaul that shrinks the German lender's once-mighty investment bank along with its global footprint and key fixed-income business.
"Today we have announced the most fundamental transformation of Deutsche Bank in decades," Mr. Sewing said in a statement Sunday. "We are tackling what is necessary to unleash our true potential."
Here are the key points of the plan and the bank's financial estimates:
- Targets headcount of 74,000 by 2022.
- Restructuring cost of €3 billion in 2Q, €5.1 billion over 2019.
- Cutting risk-weighted assets by about 40% in effected businesses.
- No dividend to be paid for 2019 and 2020.
- Plans to invest €4 billion in improving controls by 2022.
- Creates fourth division to be known as corporate bank.
- Sees private bank ROTE above 12% in 2022.
The scale of the revamp underscores the failure of Mr. Sewing and his recent predecessors to solve the fundamental problem: costs were too high and revenue too low. After government-brokered merger talks with Commerzbank AG collapsed in April, the CEO had few alternatives to bolster market confidence. His plan was approved by the board at a meeting Sunday.
Deutsche Bank climbed as much as 4.4% in Frankfurt trading and was up 3.7% at €7.44 as of 9:37 a.m., making it the best performer on the STOXX Europe 600 banking index and the second best on the broader STOXX 600 index.
Some of the financial targets set out in the plan look overly optimistic and the goal of achieving a return on tangible equity of 8% by 2022 looks "highly improbable," Citigroup analysts including Andrew Coombs, Nicholas Herman wrote in a note to investors.