By Eyk Henning
FRANKFURT-- Deutsche Bank AG on Monday released details of its
long-awaited strategic overhaul designed to close the gap with
rivals for profitability and capital adequacy.
The German lender said it would scale back at its investment
banking and retail operations while strengthening transaction
banking as well as asset and wealth management services.
"Today marks the next milestone in the journey we began in 2012.
We reaffirm our commitment to being a leading global bank based in
Germany [but] must ... focus more sharply on mutually attractive
client relationships," co-chief executives Anshu Jain and Jürgen
Fitschen said.
But their plan, which is in line with what has been previously
reported by The Wall Street Journal and others, met initial
skepticism. Deutsche Bank shares traded down 2.8% early Monday,
compared to an unchanged benchmark index DAX.
The overhaul was deemed necessary because Deutsche Bank's shares
have lagged major rivals over the past three years due to the
bank's lower profitability and substantial legal risks.
Deutsche Bank will implement a new cost-cutting program to
reduce annual costs by EUR3.5 billion ($3.8 billion), on top of the
current program designed to strip EUR4.5 billion in expenses.
The bank also lowered its targeted return on equity, a key gauge
of profitability, to at least 10% by 2020. It previously aimed at
12% by the end of next year.
"The new targets are later-dated than we expected," said analyst
Amit Goel from Exance BNP Paribas. Jefferies analyst Omar Fall said
the targets need to be taken with a pinch of salt given the bank's
weak history of delivering on goals.
On Sunday, Deutsche Bank said that legal costs halved its
first-quarter net profit to around EUR559 million.
On Monday, it said it would shave around EUR200 billion in
certain assets from the investment bank, which will see EUR800
million in disposal costs and EUR600 million drop in annual
revenue, Deutsche Bank strategy chief Stefan Krause told
analysts.
The bank will focus on reducing activities with hedge funds,
repo businesses and certain trading activities that have become
less profitable amid new regulations. At the same time, it will
boost assets in other areas of the investment bank by around EUR50
billion to EUR70 billion.
Deutsche Bank also aims to reduce its retail banking operations
by floating a majority stake in its Postbank unit on the stock
market by the end of next year.
The bank will also cut the number of its own retail branches by
around 200, from 700, while investing up to EUR500 million in the
unit's digital technologies. That is around half of the overall
EUR1 billion in investments into Deutsche Bank's digital
technologies.
The lender will keep its European retail banking network with
branches in Italy, Spain and other countries, contrary to
widespread speculation.
Cutting back at its investment and retail banking arms is set to
help Deutsche Bank improve its capital adequacy, which trails
rivals. The lender aims to improve its leverage ratio, which
compares loss-absorbing capital with total assets, to 5% from 3.4%,
while keeping its equity ratio stable at 11%.
A key area of investment will be two rather small units.
Deutsche Bank will invest more than EUR1 billion in its global
transaction banking unit and expand the balance sheet of its asset-
and wealth-management unit by up to 10% per year until 2020.
Monica Houston-Waesch contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com
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