Slashing costs

Deutsche Bank plans deep cuts as investor pressure mounts

People are silhouetted next to the Deutsche Bank’s logo prior to the bank’s annual meeting in Frankfurt
The dark before the storm at Thursday's annual shareholders' meeting. Source: Reuters

Deutsche Bank on Thursday all but confirmed reports it would fire 10,000 employees as it pares down its investment banking business after years of losses. The Frankfurt-based bank said it had already started trimming its workforce to “well below 90,000” from 97,000, including letting at least 25 percent of its equities traders go.

The layoffs will coincide with a 10 percent, or €100 million, reduction in exposure at its investment bank and will result in a one-time charge this year of €800 million. “We remain committed to our Corporate & Investment Bank and our international presence – we are unwavering in that,” CEO Christian Sewing said in a statement. “We must concentrate on what we truly do well.”

The announcement was made just hours before what promises to be a turbulent annual meeting on Thursday. Shareholders are angry about three successive years of losses, the sharp fall in profit in the first quarter, the abrupt dismissal of chief executive John Cryan last month, and the lack of any clear or compelling strategy.

With the departure of CEO John Cryan last month, investor anger has focused on Paul Achleitner, chairman of the supervisory board.

With Mr. Cryan’s departure, their anger has focused on Paul Achleitner, chairman of the supervisory board, who is getting the blame for top management turnover and failure to find a strategy to return the bank to profit. Proxy advisory firms Glass Lewis and Ivox Glass Lewis have recommended that shareholders deny Mr. Achleitner the traditional vote of confidence. ISS was more circumspect out of fear of further instability, but Hermes EOS urged the board to draw up a succession plan to replace Mr. Achleitner.

Along with the 80 percent fall in first-quarter profit, the bank has been rocked by a sharp decline in the share price, reaching a 52-week low of €10.72 on Wednesday — and opening only slightly higher Thursday at €10.91.

Adding to its woes was the blistering critique this week from the bank’s chief economist, David Folkerts-Landau, who accused former Deutsche boss Josef Ackermann of reckless expansion in investment banking. The Swiss CEO, who headed Deutsche from 2002 to 2012, pursued ambitious profit goals that could only be reached “by accepting major financial and ethical risks,” the economist said in an interview with Handelsblatt. (Mr. Ackermann rejected the criticism, citing once again the profitability of the bank when he handed over the reins.)

Christian Sewing faces the Herculean task of clearing up after Deutsche's failed investment bank strategy.

In point of fact, Deutsche was forced to pay billions in penalties and reparations for infractions stemming from the Ackermann era, ranging from misleading investors about mortgage-backed securities to manipulation of the Libor benchmark rate.

Christian Sewing, the new chief executive, faces the Herculean task of clearing up the aftermath of this failed strategy. The planned job cuts are among his first concrete measures to fulfill his pledge of meeting the bank’s cost limit of €23 billion this year — and that figure is slated to shrink to €22 billion in 2019. The bank is shutting down its US and Asian branches, has disbanded its energy M&A team, has reduced its lending activity in the US and in other ways indicated it is abandoning its global ambitions.

Measures in the supervisory board itself to address the problems leaked out ahead of the shareholder meeting. A newly formed strategy committee will be headed by former Merrill Lynch CEO John Thain, due to be elected to the board on Thursday. Another prospective new board member, former UBS manager Michele Trogni, will head up an IT committee. The new committees will enable the board to play a more active role in these areas.

In addition, Swiss lawyer Stefan Simon, who represents 10 percent shareholder Qatar on the board, will join the chairman’s committee currently consisting of Mr. Achleitner, former SAP CEO Henning Kagermann, and two staff representatives on the board.

This article was updated on May 24 to include Deutsche’s response to the reports of job cuts.

Yasmin Osman, Daniel Schäfer and Michael Maisch cover banking and financial services for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the authors: osman@handelsblatt.com, schaefer@handelsblatt.com, and maisch@handelsblatt.com.

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