Deutsche Bank (DB) Announces Radical Restructuring Plans

In a bid to improve long-term profitability, Deutsche Bank (DE:DBKGn) (NYSE:DB) has announced some major restructuring plans and fresh set of targets it seeks to achieve by 2022 without raising additional capital. Affected by restructuring costs, the bank expects to incur loss before income taxes of €500 million and a net loss of €2.8 billion in second-quarter 2019.

CEO Christian Sewing said, “We are tackling what is necessary to unleash our true potential: our business model, costs, capital and the management team. We are building on our strengths. This is a restart for Deutsche Bank – for the long-term benefit of our clients, employees, investors and society.”

Let’s take a look at the key highlights of Deutsche Bank’s major overhaul plans;

The first major one involves exit from the global Equities Sales & Trading business. Also, it will restructure the fixed income segment with focus on Rates unit. Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by nearly 40%.

Further, it will create a new Capital Release Unit, which will ensure smooth winding down of assets related to businesses that the bank has already exited or plans to exit in the near term.

Secondly, Deutsche Bank remains committed to reducing expenses by undertaking restructuring of businesses and infrastructure as it seeks to reduce adjusted costs to €17 billion in 2022. The lender plans to achieve this by cutting 18,000 jobs in the next three years. Also, it is targeting a cost income ratio of 70% and post-tax Return on Tangible Equity of 8% by 2022.

Considering the restructuring plans, Deutsche Bank plans not to distribute common equity dividends in 2019 and 2020. However, in the long term, it expects to free up capital of €5 billion, which will be returned to shareholders through share buybacks and dividends, beginning 2022.

Last week, the bank had approached German financial regulator Bafin and the European Central Bank with request for permission to maintain lower common equity tier (“CET”) 1 ratio. The regulators have allowed the bank to maintain a minimum CET1 ratio of 12.5%, going forward. The German lender’s CET1 ratio was 13.7% as of Mar 31, 2019.

Along with the above-mentioned changes, Deutsche Bank plans to invest considerably in technology to boost innovation and further strengthen the internal control environment.

The stock has lost 6.2% on the NYSE in the past six months against the industry’s growth of 3.3%.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the finance space are BNP Paribas (PA:BNPP) SA (OTC:BNPQY) , Credit Suisse (SIX:CSGN) Group (NYSE:CS) and Grupo Financiero Galicia S.A. (NASDAQ:GGAL) . All these stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for BNP Paribas has been raised nearly 1% for the current year in the past 60 days. The company’s share price has gained 2.8% in the past six months.

Credit Suisse has witnessed slight upward revision in earnings estimates for 2019 in the past 30 days. Its share price has risen 6% in the past six months.

Grupo Financiero’s shares have gained 12.4% in three months’ time. Its earnings estimates for 2019 have moved up 10% in the past 60 days.

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