Shares of Deutsche Bank are trading 4% lower despite the unveiling of a major cost cutting plan at Germany’s largest investment bank. The company reported Q1 revenue figures higher by 24% when compared to last year’s figure of €10.4 billion ($11.27 billion). Non-interest expenses increased by 34% to €8.67 billion ($9.40 billion) for the same period.
The obvious rise in expenses was tackled by the announcement of a cost cutting plan to the tune of €3.5 billion ($3.23 billion). The German bank plans to increase its leverage ratio from 3.4% to 5%, which will put it on par with the majority of U.S. banks. European banks have been heavily criticized in recent years after failing to reduce their operating leverage.
CFO Stefan Krause also highlighted that Deutsche Bank does not expect any material impact from foreign exchange fixing investigations. Prospective exposure is much smaller than the LIBOR probes which cost the firm around $2.5 billion.
Deutsche Bank has also stated that foreign exchange revenues were significantly higher, driven by increased client activity and higher market volatility. Despite a shrinking balance sheet, the bank claims a positive outlook when it comes to maintaining and increasing its market share.
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As part of its new cost cutting plan, the bank will dispose of investment gaming assets totaling between €130 and €150 billion. The German lender will also spin off its retail banking business Postbank, with the intention to sell it by the end of next year.
Deutsche Bank expects 60 percent of its savings to come from gains in efficiency, and the remaining 40 percent from parting with 200 retail branches and exiting some businesses and markets.
As previously reported by Finance Magnates, the bank’s fiscal quarter has been impacted by a write down of €1.5 billion – related to litigation costs.
Speaking during the earnings call, Co-Chief Executive Officers of Deutsche Bank Jürgen Fitschen and Anshu Jain, said, “Profits were impacted by litigation expenses of EUR 1.5 billion, primarily reflecting the bank’s definitive settlement with U.S .and UK authorities relating to interbank offered rates (IBOR) and bank levy charges of EUR 561 million.”
“Debt Sales & Trading revenues were the best since eight quarters, and Equity Sales & Trading revenues the best since 2008, driven by strong client activity, robust markets and a normalization of market volatility after recent historic lows,” the executives added.