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Deutsche Bank (DB) Continues Revamping, To Shed Risky Assets

Zacks Equity Research

Continuing with its overhauling moves for reviving profitability, Deutsche Bank DB is likely to shed 25% of the company’s risky assets over the next few years, reported Reuters. The plan includes detailed restructuring moves as chief executive officer Christian Sewing committed "tough cutbacks" to shareholders post failed merger talks with Commerzbank.

Per the plan, the German bank is anticipated to decrease its risk-weighted assets by 20-25% over the next three-to-five years. Notably, these assets worth around €347 billion ($388.61 billion) as of Mar 31, 2019, will be reduced to about €260 billion.

Deutsche Bank has refrained from comments. However, the bank is taking measures to speed up its transformation strategy for improving profitability. "We will update all stakeholders if and when required," the bank noted.

Notably, other moves reflect cutbacks in the U.S. equities trading business, including prime brokerage and equity derivatives. The bank would create a ‘bad bank’, a measure used by failed U.K. banks post the 2008 financial crisis.

The newly-formed unit will hold tens of billions of Euros of assets worth around €50 billion as Sewing is trimming its investment banking division. This includes Sewing’s plans to shrink or shut down the equity and rates trading businesses outside continental Europe completely, and focus on the core transaction banking and private wealth management business.

Further, the number of employees to be affected by these moves is currently uncertain. The bank will likely reduce the headcount to below 90,000, from the existing 91,463.

The proposed changes are expected to be announced with the bank’s six-month results in the second half of July.

Nonetheless, these overhauling steps are anticipated to postpone some of the bank's targets, including the goal of achieving a return on tangible equity of 4% in 2019.

Deutsche Bank faces pressure to trim its investment banking division, following the collapse of merger talks with domestic rival Commerzbank. Though Deutsche Bank’s restructuring efforts, including cost-saving measures, look encouraging, it is difficult to determine how much the bank will gain, considering the prevalent headwinds. Furthermore, dismal revenue performance is another concern.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

Shares of Deutsche Bank have lost around 8.9% on the NYSE, in the last six months, as against the industry’s growth of 8.5%.


Stocks to Consider

Macro Bank Inc. BMA has been witnessing upward estimate revisions for the past 60 days, with the company’s shares surging nearly 78.9% on the NYSE, in six months’ time. It sports a Zacks Rank of 1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DBS Group Holdings Ltd DBSDY has been witnessing upward estimate revisions for the past 60 days. Over the past six months, this Zacks #1 Ranked company’s shares have been up more than 10% on the NYSE.

Banco Latinoamericano de Comercio Exterior, S.A. BLX has been witnessing upward estimate revisions for the past 60 days. In the past six months, this Zacks Rank #1 company’s shares have been up more than 28% on the NYSE.

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