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Deutsche Bank to Seek Another €2.5 Billion in Savings Amid Flagging Profit

deutsche bank
Deutsche Bank twin towers in Frankfurt.
  • Why it matters

    Why it matters

    Deutsche Bank has a cost to income ratio higher than its rivals, forcing the bank to plan a series of cost-saving measures to make it more efficient.

  • Facts

    Facts

    • Deutsche Bank’s cost-income-ratio in 2013 was 89 percent. Rivals Goldman Sachs was 63.2 percent and JP Morgan was 72.4 percent.
    • The current savings program will be extended from 2015 to 2018.
    • The bank wants to save around €7 billion by then.
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    Audio

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Deutsche Bank, Germany’s largest bank, is planning sweeping cost-cutting measures as it seeks to boost competitiveness.

According to information attained by Handelsblatt, joint chief executives, Jürgen Fitschen and Anshu Jain, are planning to cut up to €2.5 billion ($3.4 billion) in costs by 2018.  This will expand the bank’s current plans to trim expenses by around €4.5 billion by 2015, bringing total cuts to between €6 billion and €7 billion, according to sources close to the bank. Deutsche Bank refused to comment.

The renewed belt tightening efforts are seen as essential to boost the bank’s competitiveness. In the first quarter of 2014 its cost-income-ratio was 77 percent. In other words, for every €1 the bank made it spent 77 cent.

Deutsche Bank has been making progress in this area. In 2012, when Mr. Jain and Mr. Fitschen took over, the ratio stood at 92.5 percent and in 2013 it had been reduced to 89 percent. However, it still lags behind competitors. For instance, Goldman Sachs had a ratio of 63.2 percent last year and JP Morgan’s was 72.4 percent.

The Frankfurt-based bank has already said it wants to reach 65 percent by 2016.

The bank is not expected to look for job cuts at this time but rather it hopes to improve efficiency through technology and improved operations.

The company’s employees are to be informed next week about the details of the new cost-cutting plans.

Deutsche Bank has to make these cuts to improve profitability, as both its investment banking and private banking businesses are struggling due to current low interest rates, something that is affecting the entire banking industry.

At the same time tougher regulations and stronger capital requirements are pushing up costs for the industry.

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