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German banking giant Deutsche Bank’s DB restructuring overhaul, in a bid to improve growth prospects, continues. With the reshaping of its Equities Sales & Trading business, part of the Corporate & Investment Bank (CIB) unit, the bank targets to layoff around 25% in this division.
Notably, in Cash Equities, scaling back its operations, the banking giant intends to focus on electronic solutions and the key clients worldwide. Further, in Prime Finance, the leverage exposure is expected to be cut down by one-fourth, equaling around €50 billion.
Therefore, the aforementioned reductions in business will reduce leverage exposure by more than €100 billion in the CIB unit and are majorly expected by the end of 2018. The reduction amount is equivalent to 10% of leverage exposure worth €1,050 billion, reported at the end of first-quarter 2018.
“We remain committed to our Corporate & Investment Bank and our international presence – we are unwavering in that,” said Christian Sewing, chairman of the Management Board. “We are Europe’s alternative in the international financing and capital markets business. However, we must concentrate on what we truly do well,” he further noted.
Effects of Restructuring
Along with restructuring in the investment bank division, Deutsche Bank aims cost savings, as well. In 2018, adjusted costs are expected not to exceed €23 billion. Moreover, for 2019, adjusted costs are targeted to be reduced to €22 billion by the Management Board.
Therefore, implementation of such strategic plans is anticipated to result in job cuts, bringing down the employee count to below 90,000 from existing number of employees over 97,000.
Further, the target of post-tax return on tangible equity (RoTE) of about 10% is estimated in normal business conditions, 2021 onward, by the Board. Though the current year might record planned restructuring charges of around €800 million, steady growth in return on capital is predicted in the upcoming years.
The past few years have been tough for this bank due to numerous litigations and regulatory proceedings in and outside Germany, an unstable European economy at the time and the lender’s involvement in scandals. These factors adversely impacted profits, bringing the bank on the edge of a great fall.
Though Deutsche Bank has been undertaking steps to achieve various financial targets laid down by the new CEO to deliver a turnaround, stringent regulations and low interest rates environment might impede its growth, to some extent.
Most of the big rating agencies have put Deutsche Bank under observation to decide its credit ratings. Given the bank’s persistent struggle to keep its performance stable, a downward rating revision is likely. This is feared to further impact investors’ confidence in the stock and might even make funding expensive.
Additionally, the declining trend of dollar against other currencies is likely to continue thwarting this German-based lender’s revenues. In first-quarter 2018, unfavorable exchange rate movements were partly responsible for the year-over-year decline in income.
In six months’ time, the company’s shares have plunged 32.9% on the NYSE compared with nearly 2.7% decline recorded by the industry. At present, Deutsche Bank carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Foreign Stocks to Consider
Mitsubishi UFJ Financial Group, Inc. MUFG has been witnessing upward estimate revisions for the past 60 days. It carries a Zacks Rank of 2 (Buy), at present.
Banco De Chile BCH has been witnessing upward estimate revisions for the past month. It currently carries a Zacks Rank of 2.
Shinhan Financial Group Co Ltd SHG has been witnessing upward estimate revisions for the past two months. It also holds a Zacks Rank of 2, at present.
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Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
Shinhan Financial Group Co Ltd (SHG) : Free Stock Analysis Report
Banco De Chile (BCH) : Free Stock Analysis Report
Mitsubishi UFJ Financial Group, Inc. (MUFG) : Free Stock Analysis Report
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