Deutsche Bank is abandoning its long-term ambition of becoming a leading global investment bank by retreating into its European home market and significantly reducing corporate finance and trading in the US.
Just 18 days after his appointment as chief executive, Christian Sewing hinted it would no longer go to head to head with the likes of Goldman Sachs and JPMorgan when he announced he would “redefine the core of our bank” by focusing on corporate clients in Europe.
“Deutsche Bank's DNA is in wholesale banking deeply rooted in Europe,” Mr Sewing said. In a series of acquisitions starting with the purchase of the UK’s Morgan Grenfell in 1990 and the US’s Bankers Trust in 1999, Deutsche had aspired to become a global investment bank serving all customers, regions and product groups.
While not disclosing many details, Germany’s largest lender on Thursday said it would reduce its US footprint and refocus on European corporate clients and trading activities. It said job losses would be needed to meet its 2018 cost-cutting target after pre-tax income in the corporate investment bank collapsed 74 per cent in the first quarter.
A person close to the bank said 300 US-based investment banking staff were fired on Wednesday before the bank’s announcement, with another 100 to be laid off by the end of the week. The person added that those job cuts were just the prelude to further redundancies in the coming weeks. Deutsche employs about 10,000 people in the US.
“We are not strong enough in [some] areas,” Mr Sewing said. “Therefore we have to act decisively and to adjust our strategy. There is no time to lose as the current returns for our shareholders are not acceptable.”
Deutsche’s woes contrasted with earnings from Barclays, its main European rival, which on Thursday boasted that pre-tax profits at its corporate and investment bank rose 48 per cent in the quarter after it beat its Wall Street rivals with a 21 per cent surge in trading revenue in US dollar terms.
Deutsche said it would quit investment banking activities where it lacked a “sustainable competitive advantage”. It did not disclose the number of job cuts it was planning.
Mr Sewing said he wanted to lower the investment banking division’s contribution to group revenue to 50 per cent by 2021, down from about 54 per cent in 2017.
Analysts welcomed the plan in principle but pointed out that the lack of detail made it difficult to assess its real significance. “We applaud [Mr] Sewing for getting full management support for a ‘shrinkage’ plan so quickly. What we are missing is timeframe and details,” said Kian Abouhossein, a JPMorgan analyst.
In calls with analysts and journalists, Mr Sewing stressed that the cuts did not imply the investment bank was fully retreating from the US.
Shares in Deutsche initially fell more than 3 per cent in early Frankfurt trading but later recovered.
In corporate finance, Deutsche said it would focus on offering “global industry expertise” to customers “closely aligned with the strengths of the German and European economies” and scale back US and Asian-focused activities. The bank will also reduce its US rates sales and trading business and in equities wants to cut back its business activities with hedge funds.
In the first quarter of 2018, Deutsche’s income before tax more than halved to €432m compared with the same period a year earlier, missing average analyst expectations by almost a third.
Sales and trading revenue fell 17 per cent in the first quarter, compared with an average rise of 10 per cent at the big five US banks.
Citi analysts called the first-quarter performance “very weak”.
Additional reporting by Martin Arnold in London
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