Deutsche Bank will cut 18,000 jobs and dramatically shrink its investment bank as part of a costly overhaul that marks a retreat from Wall Street after two decades of intense competition with American rivals.
The German bank said Sunday that it would shutter its equities sales and trading business, while creating a “bad bank” for €74 billion ($83 billion) in assets that eat up too much capital. The assets will be sold over the coming years.
“Today we have announced the most fundamental transformation of Deutsche Bank in decades,” CEO Christian Sewing said in a statement, calling the moves a “restart.”
It’s a dramatic shift for the 149-year-old bank, a pillar of European finance that has struggled to produce consistent profits despite undergoing a series of overhauls.
Deutsche Bank said the job reductions would be made by 2022, bringing its headcount down to roughly 74,000 employees.
End of an era
Germany’s biggest bank at one point dreamed of dominating investment banking, competing with the likes of Goldman Sachs and Morgan Stanley in Europe and abroad. It stated its global ambitions in 1999 with the purchase of Bankers Trust, an American investment bank.
But the bank — and its investment banking team in particular — struggled to find direction following the global financial crisis.
A sluggish European economy and a reluctance to reform made it harder for Deutsche Bank to compete in the expensive sector.
The division continued to suck up resources even as it fell further behind competitors. The resignation last week of the head of the investment bank, Garth Ritchie, signaled that major changes were coming.
The reforms announced Sunday will let Deutsche Bank take a step back from investment banking and prioritize more reliable lines of business such as corporate money management. But the restructuring effort won’t come cheap.
The bank said that costs related to the overhaul would push it to a net loss of €2.8 billion ($3.1 billion) for the second quarter. The total cost of the restructuring will hit €7.4 billion ($8.3 billion) by 2022.
Pressure for Sewing to outline a path forward increased following the collapse of merger talks with crosstown rival Commerzbank and a dismal first quarter earnings report.
In the first three months of the year, profit rose 67%, but that was due entirely to yet another round of belt-tightening. Revenue fell 9%, and the company said it would be “essentially flat” for the year.
Investment banking revenue fell 13% to €3.3 billion ($3.7 billion), while costs for the unit totaled €3.4 billion ($3.8 billion).
Shares in the bank are down almost 25% in the past year and hit a record low in June.
For weeks, Deutsche Bank had telegraphed that a turnaround plan was coming soon. But analysts weren’t sure how far Sewing would go.
The bank has slashed thousands of jobs since he took over in April 2018, but this will be the biggest round of layoffs under his leadership.
Deutsche Bank did not provide a geographic breakdown of the cuts, but many are expected to hit US employees. The bank employs almost 9,300 people in North America, with most of those jobs in the United States.