Daily Management Review

Deutsche Bank announces large-scale restructuring plan, investors aren't convinced


Deutsche Bank, which has been experiencing serious problems in recent years, decided to take drastic measures in order to return customers and investor confidence. The company announced a large-scale business restructuring, promising to reduce about 18 thousand employees, significantly lower costs and return to profit in the shortest possible time. However, investors were not convinced by such optimistic forecasts and the company's shares slipped by more than 6% on Monday.

Tony Webster
Tony Webster
Deutsche Bank decided on a major change. According to the bank’s CEO, Christian Sewing, it will be the most serious one in the last few decades. On Sunday, the bank announced a plan to restructure its business, including a serious reduction in activities of the investment unit and withdrawal from the securities trading market, cost cutting, massive staff cuts, as well as large-scale management reshuffle.

All this, according to the bank’s management, should help the bank return to a stable profit and, in general, end the unsuccessful period of permanent financial and reputational losses.

Deutsche Bank’s plan turned out to be very optimistic and courageous.

In three years the company intends to lay off about 18 thousand employees worldwide and to achieve a reduction in costs of € 6 billion by 2022. This year, obviously, will again become unprofitable for the bank: in the second half of the year the company will write off assets worth about € 3 billion, as a result of which the bank will finish the second half of the year with a net loss of € 2.8 billion. By 2022, the amount of assets written off will reach € 7,4 billion. But at the same time, 2020, the bank’s management expects to finish the year with a surplus.

However, most analysts and investors do not believe in the success of this plan. This is evidenced by the fall in the company's shares, which followed on Monday and continued on Tuesday. As a result, for two days, Deutsche Bank's shares slipped by almost 10% compared with the closing level of trading on Friday and at the time of this writing, they are trading at around € 6.5. If the negative dynamics of trading continues, then on Wednesday Deutsche Bank's securities may update their historical price minimum of € 6, set in May.

KBW analyst Thomas Hallett, quoted by Bloomberg, believes that the restructuring plan itself is positive news that should support the level of prices for Deutsche Bank shares. However, the expert notes, the objectives of the profit management guide raise questions and seem unrealistic. “There was no answer to the question of where Deutsche Bank will draw real income from,” independent analyst of Viola Risk Advisors, David Hendler, told Reuters.

source: reuters.com, bloomberg.com