Painful Restructuring Deutsche Bank Spooks Shareholders

Deutsche Bank Chief Executive John Cryan has told investors that the bank probably won't earn a profit in 2016 either after last year's record loss of €6.8 billion. On the plus side, it plans to rid itself of its two biggest legal risks this year.
More bad news for Deutsche's investors.

Deutsche Bank's long-suffering investors will hardly be surprised that 2016 will not be an easy year for the bank. But as of Wednesday, they now know exactly how bad it is likely to be.

At a conference of investors, Chief Executive John Cryan announced that Germany's largest bank is unlikely to earn a profit in 2016 because of the costly restructuring of the group. "There's a lot of stuff we have to get done this year, so this year we're not going to be profitable," Mr. Cryan, a British citizen, said in London. "We may make a small profit, we may make a small loss, we don’t know."

Last year, the bank made a record loss of €6.8 billion ($7.6 billion), due to high write-downs and provisions for legal risks. Mr. Cryan's announcement sent the share price tumbling almost 5 percent by Wednesday afternoon. The stock has lost about a quarter of its value since the beginning of the year.

In its annual report, the bank had already conceded last week that the first quarter, traditionally the best quarter in the banking business, would be weak this year. Daniele Brupbacher, an analyst with UBS, expects a net profit of €2.6 billion for the first three months, which would be more than 20 percent below the year-earlier quarter – not a good omen for the rest of the year.

I hope that we will come to an agreement with employee representatives by May. If we can do that successfully, we want to begin closing branches in the third quarter. Christian Sewing, Board member for private and business clients, Deutsche Bank

On the plus side, Mr. Cryan told investors the bank intends to rid itself of its two biggest legal risks this year. They involve deceiving investors in the sale of real estate securities in the United States before the financial crisis began, as well as suspicions of money laundering in Russia.

Deutsche Bank also aims to press ahead with the restructuring of its retail banking business. This summer, the lender plans to start closing more than 200 branches in Germany. "I hope that we will come to an agreement with employee representatives by May," Christian Sewing, the board member responsible for retail and corporate banking , told weekly newspaper Die Zeit. "If we can do that successfully, we want to begin closing branches in the third quarter." Deutsche Bank expects to reduce the number of branches to 500 from the current 723 by the end of 2017.

Deutsche Bank intends to eliminate about 4,000 jobs in Germany, most of them in Mr. Sewing's division, to cut costs and improve profitability. "We're currently spending 80 cents to earn one euro," said Mr. Sewing, referring to his division. "It would be nice if it were just 65 or even 60 cents."

 

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Michael Maisch is the deputy chief of Handelsblatt's finance desk in Frankfurt am Main. To contact: [email protected]