Deutsche Bank AG (DB) plans to conduct 500 more layoffs in its investment bank in London. The retrenchment is expected to occur over the coming few months in the bank’s corporate finance, capital markets and trading businesses.
With rising costs affecting the entire corporate and investment banking revenues of Deutsche Bank in 2013, the segment’s revenues recorded a 12% year-over-year drop. The bank’s income from trading fixed income, currencies and commodities was battered largely owing to the sluggish economic backdrop.
Based on the expectation that the slump in fixed income business will continue this year, Deutsche Bank plans to streamline its Investment Banking segment. Other major banks with the same apprehension include JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Barclays PLC (BCS).
In 2012, Deutsche Bank announced its Strategy 2015+ efforts, which included a number of initiatives to boost its competitiveness along with reduction in costs by €4.5 billion by 2015. Since then, the bank has laid off around 1,500 employees in its investment bank as part of its program and plans to do more.
Also, in Jan 2014 the German bank announced a 14% deduction in pay for investment bankers, raising concerns whether the European banking sector has actually recovered from the financial slump. The pay cut came after the bank reported a loss for the quarter ended Dec 31, 2013, as expenses related to court settlements and investigations into its past wrongdoings largely marred profitability.
Further, Deutsche Bank’s long-term goal includes improving efficiency in its investment bank unit by reducing cost to income ratio to 65% by the end of 2014. Notably, in 2013, the ratio stood at 76%, down from 81% in 2012. Therefore, unless the cost to income ratio improves, banks will be bound to execute aggressive cost cuts in the near term.
In the current market scenario, many banks are finding it difficult to cope with the volatile conditions, interest rate uncertainty and regulatory landscape in which the scope for revenue growth is limited. Hence, the banks are resorting to extreme cost-cutting measures comprising layoffs and closures of business units worldwide.
With management’s expectation of fixed-income trading continuing to remain weak in Europe and increased litigation costs impacting the bank’s profitability, Deutsche Bank might have to combat tough times ahead. Currently, Deutsche Bank carries a Zacks Rank #5 (Strong Sell).