Kristian Rouz – Embattled German lender Deutsche Bank gained a predictable boost to its share value after an announcement over the weekend that it would cut up to 18,000 jobs worldwide. Investors believe the move will reduce Deutsche's operational costs, and improve the bank's efficiency, amid the legal troubles and reputational losses it experienced over the past few months.
Deutsche's shares rose 5.25 per cent on early Monday morning, according to the pre-trading data released by brokerage Lang & Schwarz. Adding to investor encouragement, the bank also reaffirmed its intent to restructure its business by eliminating its global equity division and exiting international stock sales and trading, focusing primarily on the European market.
The decision marks a possible new era for Deutsche, as it appears to have decided to abandon its plan to become a multi-faceted global financial enterprise instead of focusing on lending and conventional banking.
The radical overhaul signals a retreat from Deutsche Bank’s decade-long global ambition to be Europe’s main rival to Goldman Sachs https://t.co/6GFp9F0Fxk— Financial Times (@FinancialTimes) July 8, 2019
Deutsche did not provide a detailed breakdown of how many jobs in what regions will be cut. However, the lender said Sunday its downsizing plan would cost some $8.3 Billion and would mark a new important development – Deutsche Bank is leaving Wall Street and dramatically reducing its presence in North America.
After the restructuring, Deutsche will keep some 74,000 employees across the globe. The overhaul is expected to wrap up by 2022.
"This is a restart for Deutsche Bank,” the lender's CEO Christian Sewing said in a statement. “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."
The decision, however, appears to be a forced one, as Deutsche has exhausted its options after a series of allegations of money laundering and improper lending practices.
Earlier this year, Deutsche agreed to pay $7.2 billion in US fines after the Justice Department found that the lender supposedly misled investors in its sale of mortgage-backed securities (MBS) just ahead of the 2007-8 financial meltdowns. Additionally, the bank paid another $630 Million over accusations of money laundering.
Deutsche has tried to offset the losses by expanding its business. Earlier this year, the bank entered talks to acquire another prominent German lender, Commerzbank. But the negotiations fell through in April, and subsequent reports alleged Deutsche's acquisition proposal did not get enough support from within Commerzbank.
Deutsche also paid $2.5 billion to American and British regulators after a probe into its alleged efforts to manipulate interest rates.
Overall, the institution has been bleeding cash over the first half of this year and is expected to post a net loss of $3.1 billion in Q2 of 2019.
“We are creating a bank that will be more profitable, leaner, more innovative and more resilient,” Sewing said.
Deutsche's downsizing plan is expected to mitigate risks moving forward. Chairman of Deutsche's Supervisory Board Paul Achleitner says the new strategy will allow the bank to focus on its most successful operations, which will eventually allow it to restore its shattered profitability and investor confidence.
Statement from Paul Achleitner, Chairman of the Supervisory Board pic.twitter.com/o5Cb8VgxXD— Deutsche Bank (@DeutscheBank) July 7, 2019
Investors say Deutsche still has strong positions in Europe, as well as in Asia-Pacific markets – most prominently, in Australia.
Its regional headquarters in Sydney, Hong Kong, Singapore, and Tokyo that host up to 4,700 employees are expected to continue their operation during and after the restructuring – nevertheless lay-offs have reportedly already begun.