The importance of Deutsche Bank’s investment banking division to its business model is demonstrated by the chart above, which shows that the business accounts for 54% of its total value (sales and trading, and advisory and underwriting services put together) according to our estimates.
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Since joining the company as CEO in July, Cryan has been under great pressure to end costly litigations arising from past scandals, adopt new banking policies to tighten the system, rebuild morale among employees and close a series of unprofitable business units in an attempt to make the future of the bank brighter.
Deutsche Bank’s announcement that it will close its New Zealand operations as part of global cut backs doesn’t amount to a complete withdrawal from the market because of its interest in Craigs Investment Partners and its ability to serve local clients from Australia, says the Institute of Finance Professionals New Zealand (Infinz).
Image: Deutsche Bank headquarter in Frankfurt am Main, Germany.
Shares in the bank were down 6 percent at 25.815 euros by 0850 GMT. We know exactly where we want to go.
The bank will slash 9,000 full-time jobs, 6,000 contractor positions and sell operations with 20,000 more workers. “But we have had a grave problem in implementing it”, Cryan said, addressing reporters in German, in contrast to his predecessor Anshu Jain who regularly drew criticism for never mastering the language.
Announcing Strategy 2020 as the bank, which is a major employer in London, Cryan said the bank would “become less risky by modernising our outdated and fragmented technology and withdrawing from higher-risk relationships and locations”, the first time a major bank has admitted that legacy IT and poor technology strategy is equally as risky as its financial lending strategy.
Cryan warned that “there will be consequences on compensation” when he was asked about the impact on executive bonuses but said he could not yet quantify them.
Earlier this month, the lender announced it would split its investment bank in two and part ways with three of its eight management board members. The company aims to achieve gross savings of €3.8 billion by 2018 with restructuring and severance costs in a range of €3.0-3.5 billion.
By comparison, Barclays, Credit Suisse and UBS, which are also cutting costs and devising new strategies, now only spend 64 to 77 cents to earn a euro.
The single biggest problem with Deutsche Bank’s plan from an investor’s perspective is its decision to eliminate dividends for 2015 and 2016.
Deutsche Bank’s staff will feel the pain in their pay packets, with remuneration linked more to profits and less to revenue.
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Peers such as Morgan Stanley and Goldman Sachs reported steep declines in bond trading performance in the quarter.
