Deutsche Bank Prepares to Drastically Cut Investment Bank, FIC Down 16%

The company continued to lose market share to major competitors, prompting it to shift strategies

Deutsche Bank will embark on a more drastic restructuring effort, according to its latest earnings release for the first quarter of 2018. The company’s Sales and Trading unit for Fixed Income and Currencies Business has suffered a major setback, with revenues dropping 16 percent at a time when competitors are posting record revenues.

The company is undertaking a drastic restructuring effort in order to optimize its business. The effort starts with a shift in the focus of the company on a different client mix. Deutsche Bank states that it will primarily deal with its European clients, thereby dropping the initiative to become a major global player.

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Revenues from the corporate an investment bank were down 13 percent year-on-year, while equity sales and trading tanked 21 percent year-on-year. The decline is particularly shocking considering the base effects and the much higher volatility across financial markets in Q1.

‘Significant Workforce Reduction’ Excludes FX

The news is going to prompt what the company called a “significant workforce reduction.” The change comes weeks after Christian Sewing took over as Chief Executive Officer (CEO).

The company has pledged to restructure its Corporate & Investment Bank unit. The cutbacks will avoid touching the Global Transaction Banking, treasury solutions, foreign exchange and structured finance units.

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Equities and US Fixed Income to Bear the Brunt of Restructuring

Elaborating on Deutsche Bank’s plans, the new CEO, Christian Sewing said: “We will scale back our activities in US Rates by shrinking our balance sheet, leverage exposure and repo book in particular. At the same time we will invest in our European Rates business which is one of our proven strengths.”

The company is also undertaking a review of its global Equities business with the expectation that it will make more reductions in this space.

“These actions will involve cost reductions. These cutbacks will be painful, but they are unfortunately unavoidable if we want to be sustainably profitable in the best interests of our bank, our clients and our investors,” Mr Sewing elaborates.

A Long-Time Coming

Shares of Deutsche Bank have underperformed materially when compared to its peers. The company’s previous management under John Cryan started the effort to divest the German lender’s exposure to the investment banking arm, but the new management appears to be committed to accelerating this process.

Deutsche Bank did not provide any specific details about how much stain it intends to cut. The shift of focus on European clients fits in with the role of the bank in the real economy and this is where the company appears to be focusing its effort.

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