Deutsche Bank to Reduce Investment Banking in Focus on Europe

• April 26 2018
• Steven Arons

Deutsche Bank AG plans to cut back its investment bank to save costs and focus on European clients, retrenching from a decades-long effort to compete with Wall Street peers.

Deutsche Bank AG plans to cut back its investment bank to save costs and focus on European clients, retrenching from a decades-long effort to compete with Wall Street peers.

Germany’s largest lender will scale back U.S. rates sales and trading, reduce the corporate finance business in the U.S. and Asia, and review its global equities business with a view toward cutting it back, the bank said in a statement Thursday. The measures will lead to a “significant reduction” in the workforce this year, Deutsche Bank said.

The decision caps a fresh review of the investment bank, whose future had been a key factor in the tumultuous management shakeup that saw Christian Sewing take over as chief executive officer this month. A Deutsche Bank veteran who started as an apprentice, Sewing is accelerating a push to refocus the lender on its European home market and reverse an effort to compete head-to-head with the large Wall Street firms that dominate volatile securities trading.

In consumer banking, the company plans to focus on growing markets like Italy and Spain while in wealth management, the bank will look to grow in Germany and in international markets, Deutsche Bank said.

While a shrinking investment bank in the U.S. will make it harder for Sewing to return Deutsche Bank to growth, it could help him reach a target of 23 billion euros ($28 billion) in adjusted costs this year. Sewing has called the target “non-negotiable” in a memo to staff sent earlier in April after his predecessor, John Cryan, was ousted amid criticism that he didn’t execute effectively enough on his strategy.

Sewing also said that the bank will pull out of areas in the investment bank where it’s “not sufficiently profitable.” JPMorgan analysts led by Kian Abouhossein recently estimated that the U.S. equities unit had a cost-income ratio of 125% last year, making it Deutsche Bank’s worst-performing investment bank unit in the region.

Other highlights from Deutsche Bank’s first-quarter earnings:

• 1Q net revenue EU6.98 billion, down 5%; analyst estimate EU7.27 billion
• 1Q sales and trading revenue EU2.45 billion, down 17%
• 1Q net income attributable to shareholders EU120 million