(July 4): Deutsche Bank AG Chief Executive Officer Christian Sewing is putting the final touches on a sweeping turnaround plan that may reshape Germany’s biggest bank for years to come. After his first effort fell short and merger talks with Commerzbank AG went nowhere, the CEO is seeking to radically shrink and reshape Deutsche Bank’s business across the globe.
The bank is set to finalise the details of the lender’s latest restructuring this weekend when its supervisory board meets to make a final decision. Up for consideration: huge job cuts most likely focused on the investment bank, another management shakeup and the creation of a new unit that will house unwanted assets. But plenty of questions remain. Here’s a look at what we know and don’t know about the plan at this point:
The scene is being set for more tumult at the top as Sewing -- just over one year into the job -- continues a purge of the bank’s top ranks that started shortly after he took over. He’s said to have investment bank boss Garth Ritchie, Chief Regulatory Officer Sylvie Matherat and Chief Financial Officer James von Moltke in his sights.
The question is who might replace them. Sewing will probably take direct control of the troubled investment unit and appoint one or two subordinates who won’t join him on the management board. Possible candidates include Mark Fedorcik, Yanni Pipilis and Stefan Hoops. Karin Dohm will probably get Matherat’s job, though it’s unlikely to come with a board seat for now. The changes may shrink that group to seven members from nine.
The headline number for job cuts is expected to be about 20,000, according to people with knowledge of the matter. That’s more than a fifth of the workforce and would represent the biggest reductions in a decade. The bank is already slashing positions at the retail and commercial clients division. What we still don’t know -- amid reports of a large retrenchment in U.S. equities -- is just how many roles will be cut from the investment bank, how quickly the axe is going to fall and where the cuts will be felt the most. The division had 18,200 front-office staff and 40,800 total employees at the end of the first quarter.
The restructuring, with the severance packages, may cost as much as 5 billion euros $5.6 billion), people familiar with the matter said. The bank will probably slip to a net loss this year because of those costs, the Financial Times reported on Wednesday.
The question is what new goals the CEO might set and by when. Deutsche Bank says it wants to make the cost-to-income ratio its principal target rather than the adjusted costs measure it uses now. The bank is also in talks with regulators about potentially lowering its capital cushion, putting a question mark over where its common equity tier 1 ratio will end up.
The CEO wants to shift the bank away from its focus on institutional clients toward meeting the trade finance and cash management needs of large companies. He’s looking at drastic cuts to equities and interest rates trading and may shutter those businesses in several countries outside Europe, people familiar with the matter have said.
But its not all about retreat. Sewing says he wants to invest in the transaction bank, headed by Stefan Hoops, as well as the private wealth management unit under Fabrizio Campelli.
The scale of those cuts and investments aren’t yet fully known, but Sewing is considering eliminating half of the bank’s global equities trading workforce while he plans to hire 300 wealth managers, people familiar have said.
Paying the Bill
All the options for paying for the massive restructuring bill come with their own headaches. Sewing is said to be against a capital increase because it will dilute the holdings of the bank’s long-suffering shareholders. He’s considering tapping into the bank’s capital cushion, but such a move risks provoking the ire of regulators.
The bank could also sell the shares of its asset manager, DWS, though there’s no indication yet that the option is being considered. Deutsche Bank owns more than three quarters of DWS’s shares and its stake could go as low as 40% without losing control thanks to a unique legal structure. Reducing the capital buffers would free up cash.
Exiting businesses could leave Deutsche Bank with billions of euros of assets it no longer wants. It’s planning to create a dedicated unit to help sell or wind down those holdings, including the ones from the trading units it’s seeking to cut or close.
The ultimate size and shape of the non-core unit is unknown, though people say it will end up holding 30 billion to 50 billion euros out of the 374 billion euros ($573 billion) of risk-weighted assets the bank had at the end of the first quarter. People familiar with the matter have said it will include long-dated interest rate derivatives, equities, non-performing loans and performing loans.