Deutsche Bank has announced it is closing its equities business and cutting about 18,000 jobs — equivalent to one fifth of its global workforce — after years of decline. The move ends a trading push that lasted for three decades and "ultimately only led to losses," according to Bloomberg. The German lender has been rocked by investigations and fines stemming from the financial crisis, as well as broader challenges facing European investment banks as they grapple with ultra-low interest rates and stronger rivals
Deutsche Bank (XETRA: DBKGn.DB / NYSE: DB) is radically transforming its business model to become more profitable, improve shareholder returns and drive long-term growth. To execute its transformation, the bank will significantly downsize its investment bank and aims to cut total costs by a quarter by 2022.
The highlights of the new strategy are:
- Creating a fourth business division called the Corporate Bank which will be comprised of the Global Transaction Bank and the German commercial banking business.
- Exiting the Equities Sales & Trading business and reducing the amount of capital used by the Fixed-Income Sales & Trading business, in particular Rates.
- Returning 5 billion euros of capital to shareholders starting in 2022, facilitated by a new Capital Release Unit (CRU) to which the bank plans initially to transfer approximately 288 billion euros, or about 20% of Deutsche Bank’s leverage exposure, and 74 billion euros of risk weighted assets (RWA) for wind-down or disposal(1).
- Funding the transformation through existing resources including maintaining a minimum Common Equity Tier 1 ratio of 12.5%. The bank expects to execute its restructuring without the need to raise additional capital.
- As a result, the bank’s leverage ratio is expected increase to 4.5% in 2020 and approximately 5% from 2022.
- Reducing adjusted costs(2) by 2022 by approximately 6 billion euros to 17 billion euros, a reduction by a quarter of the current cost base.
- Targeting a Return on Tangible Equity of 8% by 2022.
- Investing 13 billion euros in technology by 2022, to drive efficiency and further improve products and services.
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