Shares of Deutsche Bank DB fell well over 5% Monday, following the firm’s announcement Sunday of a major restructuring. The investment bank will cut around 18,000 jobs and exit the equities sales and trading business, which was previously a key source of revenues. The restructuring plan is an effort by CEO Christian Sewing to “become more profitable, improve shareholder returns and drive long-term growth.”
Once the largest bank in the world, Deutsche has been on a downward spiral over the past two years, with its stock down nearly 60%. The bank was the only one to fail last year’s “stress test” by the Fed, after failing in 2015 and 2016 as well. The firm did pass this year, which provided a significant boost to the stock, but the company is still far behind its peers. Meanwhile, U.S. competitors such as Bank of America BAC, Citigroup C, Wells Fargo WFC, and JPMorgan Chase JPM passed the test with flying colors, prompting stock buybacks and dividend increases.
The restructuring hopes to allow Deutsche to focus on areas where it has had significant historical success. Deutsche is creating a new division, the “Corporate Bank.” This division will primarily serve Deutsche Bank and Postbank’s commercial and corporate clients. Deutsche expects the restructuring initiatives will allow the firm to grow its share as the market leader in German banking, especially with large German corporations. Deutsche has had historical success in this sector.
Along with changes to its business structure, multiple Deutsche board members are also leaving. Corporate and Investment Bank President Garth Ritchie will step down at the end of the month, but will continue advising the bank until the end of November. Additionally, Chief Regulatory Officer Sylvie Matherat and Management Board member Frank Strauss will step down at the end of the month. Meanwhile, Cristina Riley, Bernd Leukert and Stefan Simon will join the board.
The total cost of one-off charges for the restructure is expected to be EUR 7.4 billion ($8.3 billion) with EUR 5.1 ($5.72) billion coming in fiscal 2019 and EUR 3 billion ($3.37 billion) coming in Q2. Deutsche also gave updated Q2 guidance, which factored in restructuring costs. The firm now expects a net loss of EUR 2.8 billion ($3.14 billion) compared to positive EUR 120 million ($134.63 million) before restructuring expenses. Investors should note that Deutsche plans to officially release its Q2 earnings and revenue result on July 24.
Deutsche has failed to produce positive earnings in three out of the past four years and the restructuring plans may impact the company’s ability to post positive fiscal 2019 results. Deutsche Bank is currently a Zacks Rank #4 (Sell).
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