Deutsche Bank will exit its equities sales and trading business, while retaining a focused equity capital markets operation, as part of a radical transformation.
In this context, Deutsche Bank has entered into a preliminary agreement with BNP Paribas to provide continuity of service to its prime finance and electronic equities clients.
According to Deutsche Bank, this is with a view to transfer technology and staff to BNP Paribas in due course.
Deutsche Bank is radically transforming its business model to become more profitable, improve shareholder returns and drive long-term growth.
The bank will significantly downsize its investment bank and aims to cut total costs by a quarter by 2022.
Additionally, the bank plans to resize its fixed income operations in particular its rates business and will accelerate the wind-down of its existing non-strategic portfolio.
In aggregate, Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by approximately 40 percent.
Cost reduction and job cuts
Further highlights from the strategy include a workforce reduction of approximately 18,000 full-time equivalent employees to around 74,000 employees by 2022.
With this transformation plan, the bank said they aim to reduce its cost-income ratio to 70 percent in 2022.
Balance sheet reduction
The bank will also create a fourth business division called the Corporate Bank, which will be comprised of the Global Transaction Bank and the German commercial banking business.
As well as this, the bank is set to return 5 billion euros of capital to shareholders starting in 2022, facilitated by a new Capital Release Unit (CRU).
Low-return assets or assets that no longer fit into the new strategy will be moved into the CRU for wind-down.
Based on December 2018 balance sheet positions, approximately 74 billion euros of risk-weighted assets (RWA) will be transferred to the CRU.
Initially, the bank plans to transfer approximately 288 billion euros, or about 20 percent of Deutsche Bank’s leverage exposure, and 74 billion euros of risk weighted assets (RWA) for wind-down or disposal.
The bank aims to reduce the CRU’s market and credit risk-related RWA of approximately 38 billion euros to less than 10 billion euros by 2021.
Further plans
Deutsche Bank is also investing 13 billion euros in technology by 2022, to drive efficiency and further improve products and services.
Reshaping Deutsche Bank is expected to drive better and less volatile financial results, according to the bank.
Revenues are expected to grow from 22.8 billion euros in the core bank in 2018 to around 25 billion euros in 2022, reflecting realistic growth assumptions, Deutsche Bank highlighted.
Group Management Committee
Christian Sewing, CEO of Deutsche Bank noted that the bank will deliberately separate the business heads from the responsibilities of the management board.
The corporate bank will be led by Stefan Hoops, who will report to Sewing. Mark Fedorcik will be head of the investment bank, while Ram Nayak will head the fixed income and currencies business, both will also report to Sewing.
The private bank in Germany will be led by Manfred Knof, former CEO of Allianz Germany. Ashok Aram will lead the international retail business (including international commercial clients) and Fabrizio Campelli will lead the wealth management business. All three will report to Karl von Rohr.
Asoka Wöhrmann will continue to lead the asset management business DWS and will also report to Karl von Rohr.
The newly formed CRU unit will be led by Louise Kitchen and Ashley Wilson, both of whom will report to Frank Kuhnke.
The Group Management Committee will be supported by the leadership team, the extended management circle. The team will comprise 12 members, representing the relevant infrastructure functions.
CEO’s comments
Sewing commented: “In refocusing the bank around our clients, we are returning to our roots and to what once made us one of the leading banks in the world.”
“We remain committed to our global network and will help companies to grow and provide private and institutional clients with the best solutions and advice for their respective needs – in Germany, Europe and around the globe. We are determined to generate long-term, sustainable returns for shareholders and restore the reputation of Deutsche Bank.”
Sewing continued: “I am very much aware that in rebuilding our bank, we are making deep cuts. I personally greatly regret the impact this will have on some of you.”
“In the long-term interests of our bank, however, we have no choice other than to approach this transformation decisively. Only then can we build on our long-standing history and make Deutsche Bank a leading bank once again. A bank which we can be justifiably proud of.”
Sewing also highlighted: “The transformation will bring us closer to our core strength, our DNA. Almost 150 years ago, we were founded as a bank that serves German and European companies worldwide, that provides a global network and that paves the road to Europe for international companies and investors. This is exactly the role that the Corporate Bank which we are forming will play.”
Concluding, Sewing cited: “Going forward, we will have four businesses that will be entirely focused on our clients. We are focusing our investment bank, we will be less dependent on Sales & Trading and are shrinking our balance sheet. We are creating a corporate bank which will be at the centre of our bank.”
“We aim to reduce our adjusted costs by over a quarter and to simultaneously invest 13 billion euros in technology by 2022. And we are not asking our shareholders to pay for this transformation but instead plan to return capital to them. All of this will create a new, better Deutsche Bank.”
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