By Eyk Henning
FRANKFURT-- Deutsche Bank AG on Monday released details of its
long-awaited strategic overhaul designed to close the gap with
rivals for profitability and capital adequacy but investors reacted
coolly.
The German lender said it would scale back at its
investment-banking and retail operations while strengthening
transaction banking as well as asset- and wealth-management
services.
"Today marks the next milestone in the journey we began in 2012.
We reaffirm our commitment to being a leading global bank based in
Germany [but] must...focus more sharply on mutually attractive
client relationships," co-Chief Executives Anshu Jain and Jürgen
Fitschen said.
But their plan, which is in line with what has been previously
reported by The Wall Street Journal and others, met initial
skepticism. "The new targets are later-dated than we expected,"
said analyst Amit Goel from Exance BNP Paribas. Jefferies analyst
Omar Fall said the targets need to be taken with a pinch of salt
given the bank's weak history of delivering on goals.
Deutsche Bank shares were down 4.2% in Frankfurt's afternoon
trading, compared with the benchmark index DAX trading up 1.4%. The
drop follows a rise of almost 40% in Deutsche Bank shares since
mid-December, when reports surfaced that it was considering
shedding its Postbank retail unit. Traders said Monday that
investors were realizing gains following the announcement.
The overhaul was necessary because Deutsche Bank shares have
underperformed their rivals since Messrs. Fitschen and Jain took
over in mid-2012. Large shareholders have been pressing the duo to
boost profitability.
As part of that process, Deutsche Bank will implement a new
cost-cutting program to reduce annual costs by EUR3.5 billion ($3.8
billion), on top of the current program designed to strip EUR4.5
billion in expenses.
The bank also lowered its targeted return on equity, a key gauge
of profitability, to at least 10% by 2020. It previously aimed at
12% by the end of next year.
On Sunday, the lender said that legal costs halved its
first-quarter net profit to around EUR559 million because of a
record $2.5 billion charge to settle rate-rigging allegations with
authorities. Mr. Jain, who headed the investment bank at the time
the manipulations took place, acknowledged on Monday that the
scandal took "an enormous toll" on the bank. He added that he was
the investment bankers' leader and that he is now taking the
responsibility to ensure "that this is not going to happen
again."
On Monday, Deutsche Bank said it would shave around EUR200
billion in certain assets from the investment bank, which will see
EUR800 million in disposal costs and EUR600 million drop in annual
revenue, Deutsche Bank strategy chief Stefan Krause told
analysts.
The bank will focus on reducing activities with hedge funds,
repo businesses and certain trading activities that have become
less profitable amid new regulations. At the same time, it will
boost assets in other areas of the investment bank by around EUR50
billion to EUR70 billion.
Deutsche Bank also aims to reduce its retail banking operations
by floating a majority stake in its Postbank unit on the stock
market by the end of next year, once it has squeezed out minority
shareholders who still hold around 3% of Postbank. But if "we're
getting a good offer for Postbank, we will have to consider it,"
said Mr. Jain.
The bank will also cut the number of its own retail branches by
around 200, from 700, while investing up to EUR500 million in the
unit's digital technologies. That is around half of the overall
EUR1 billion in investments into Deutsche Bank's digital
technologies.
The lender will keep its European retail-banking network with
branches in Italy, Spain and other countries, contrary to
widespread speculation.
Cutting back at its investment- and retail-banking arms is set
to help Deutsche Bank improve its capital adequacy, which trails
rivals. The lender aims to improve its leverage ratio, which
compares loss-absorbing capital with total assets, to 5% from 3.4%,
while keeping its equity ratio stable at 11%.
A key area of investment will be two rather small units.
Deutsche Bank will invest more than EUR1 billion in its global
transaction-banking unit and expand the balance sheet of its asset-
and wealth-management unit by up to 10% a year until 2020.
The lender will release further details of the revamp in the
next 90 days. Closely watched will be the number of potential job
cuts and the future of Deutsche Bank's nearly 20% stake in China's
commercial lender Huaxia, which it may sell. Messrs. Jain and
Fitschen also said that the bank will close its operations in seven
to 10 countries world-wide.
Madeleine Nissen contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com
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