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Deutsche Bank scales back global ambitions

Published:Tuesday | July 9, 2019 | 12:12 AM
Clouds reflected in the facade of the headquarters of Deutsche Bank in Frankfurt, Germany, on Monday, July 8, 2019.
Clouds reflected in the facade of the headquarters of Deutsche Bank in Frankfurt, Germany, on Monday, July 8, 2019.

The radical and painful restructuring of Germany’s Deutsche Bank, which is cutting 18,000 jobs, is the end of a long, failed attempt to compete with the global investment banking giants that left it overextended.

The bank plan unveiled Sunday aims to go “back to our roots” by refocusing on traditional strengths like serving corporate customers and wealthy individuals and cutting down on its stock-trading business and fixed-income investments.

Investors gave a wary response on Monday, however, pushing shares down five per cent at €6.82 (US$7.68) in Frankfurt.

CEO Christian Sewing said the job cuts have already begun and will last until 2022, though he wouldn’t give a geographical breakdown.

Deutsche Bank had nearly 91,500 employees at the end of March, about 41,600 of them in Germany. Many of its investment banking activities are carried out in New York and London.

“This is a rebuilding which, in a way, also takes us back to our roots,” Sewing said in a message to staff.

Analysts say the overhaul is the bank’s long-needed reckoning with the failure of its expansion plan.

Deutsche Bank’s move into investment banking dates back to 1989, when it took over Morgan Grenfell, and the 1999 takeover of Bankers Trust. The division helped drive strong profits in the 2000s and was part of an ambition to become one of the global banking giants, like JPMorgan or HSBC.

But the expansion, and the global financial crisis around 2008, also helped generate its subsequent problems.

Deutsche Bank wrestled for years with high costs, weak profits, and a low share price. It also paid billions in fines and settlements related to behaviour before and after the global financial crisis.

The bad headlines continued this year when two United States (US) congressional committees subpoenaed Deutsche Bank documents as part their investigations into President Donald Trump and his company. Deutsche Bank was one of the few banks willing to lend to Trump after a series of corporate bankruptcies and defaults starting in the early 1990s.

The Frankfurt-based bank went three straight years without an annual profit before earning €341 million for 2018. Sewing took over last year, promising faster restructuring after predecessor John Cryan was perceived to have moved too slowly.

“We tried to compete in nearly every area of the banking market at the same time,” Sewing told investors on Monday. “We simply spread ourselves too thin.”