Last week, Deutsche Bank management announced it was planning to slash headcount by as many as 10,000 positions to improve bank profitability, with a 25% cut in US and UK equities sales and trading jobs, where the firm has been losing ground to rivals.
New Strategy to Refocus Bank
Following last month’s dramatic management shakeup, when Chairman Paul Achleitner replaced John Cryan with Christian Sewing as CEO, Deutsche Bank management has announced plans to cut costs by $1 billion euros in its investment bank by the end of 2019. While management has not announced a specific target regarding staff cuts, people familiar with the matter say layoffs should run between 7,000 to 10,000.
This 10% cut in global staffing is part of management’s plan to scale back its global investment bank and refocus on Europe and its home market after two decades of trying to compete head-to-head with large US investment banks. “We remain committed to our Corporate & Investment Bank and our international presence – we are unwavering in that,” Sewing explained.
In announcing ‘substantial cutbacks’ to its equities business after what he described as intensive analysis, Sewing said that the new cash equities focus would no longer be on high touch: “In Cash Equities, we will make substantial reductions and will focus on electronic solutions and our most relevant clients.” The 25% reduction in equities staffing appears to be focused mainly on cash equities.
Germany’s biggest lender is expected to announce a range of restructuring measures to coincide with its annual shareholder meeting including sharply reducing its presence in the US equities market; scale back its US rates sales and trading activity; and reduce its US and Asian corporate finance businesses.
As we have reported before, Deutsche Bank’s equities franchise has been pummeled over the last year by turnover and client concerns over solvency, with equities revenue falling 21% year over year, making it the weakest of the bulge bracket equity businesses. In fact, despite equities revenues rebounding 64% in the 1st Qtr from an abysmal fourth quarter, management was not satisfied.
We anticipate Deutsche Bank will reign in its global aspirations and focus the business to better serve its core German business customers. This does not mean the bank will shutter its operations in the US or Asia, but it does mean Deutsche Bank will reduce staff and limit its business activities to the areas it believes it can win at. The real question is whether this restructuring will work or whether it is just too little too late.