FRANKFURT Deutsche Bank (DBKGn.DE) is to axe more jobs, cut bonuses and sell assets to meet tougher capital rules, its new chief executives said on Tuesday as they pledged to end a risk-taking culture driven by short-term gain.
Joint CEOs Anshu Jain and Juergen Fitschen told shareholders they will not ask them to put up new cash; instead they plan to put Germany's flagship international bank on a crash diet that will involve a 4-billion euro ($5 billion) restructuring charge and 45 billion euros in asset sales by March.
Targeting 4.5 billion euros of annual cost savings by 2015, hiving off another 125 billion euros of risky assets into a segregated unit, pooling resources across divisions and steering backroom jobs away from pricey London and New York also feature in their plan to counter a cyclical and structural downturn in banking while retaining a full-service, global business.
In a briefing held 100 days after he and Fitschen took over together on June 1, Jain said he expected job cuts "over and above" the 1,900 positions already earmarked to go, including in areas like the "failed" complex derivatives businesses.
"The medium-term economic and regulatory outlook is challenging, hence we need to significantly improve our operating performance and efficiency," Jain and Fitschen said in a formal joint statement setting out their strategy.
Just as the euro zone debt crisis has caused first-half profits to tumble at Deutsche, tougher regulations have forced lenders to shore up capital and change their business models to prevent a repeat of the 2007-08 financial markets crisis.
A change to the bank's corporate culture was "imperative", especially at the investment bank, Deutsche's management said in a statement, echoing comments made on Monday by the new CEO of troubled British rival Barclays (BARC.L).
"The burden of cultural change will fall disproportionately in the investment bank. It is also the area where profit sharing with investors has been the most asymmetric," said Jain, who previously headed the investment banking arm of the bank.
"The payout ratio, it's got to go down. Employees must make their contribution," he added, referring to the proportion of profits awarded to investment bankers in pay and bonuses.
Deutsche said it would alter pay to encourage its bankers to focus on "longer-term sustainable performance". Calling that a "behavioral change", it was an implicit acknowledgement that chasing rapid, but riskier, returns has proved expensive.
Bonuses will be cut in relation to business performance and senior managers will have to wait five years to receive bonus share awards, rather than have them staggered over three years. Already an independent panel is reviewing the structure of pay, it said, and its findings would affect this year's bonuses.
Annual bonuses worth sometimes millions of dollars and many times the typical earnings of European voters have been a lightning rod for public protests against banks and have been blamed for promoting the risk-taking that led to the crisis.
Deutsche Bank shares were up 3.7 percent at 33.02 euros at 1054 EDT, outperforming Europe's bank sector as traders said there was relief the bank did not plan to issue new shares.
"The main thing is that they will be able to avoid a capital increase," said analyst Heino Ruland of Ruland Research.
In that context, the 4-billion euro charge was acceptable, he added: "People are looking at the costs and thinking of the saying: 'Better an end to horror than horror without end'."
Jain stressed the "challenging" outlook for both retail and investment banking and insisted savings were vital to improve profit margins: "We do not feel comfortable telling you a revenue story," he told investors. "It will be a cost story."
Retail, asset management, wealth management and investment banking divisions had been run as "silos", operating largely independently, Jain noted. He now saw cost savings coming from combining asset and wealth management and enhancing cooperation with the investment bank - a model not unlike that used by Swiss rivals Credit Suisse CSGN.VX and UBS UBSN.VX.
Global banks are battling to adjust to difficult markets and a set of stricter capital rules known as Basel III.
Most rivals are axing jobs to cut costs, and Japan's Nomura (8604.T) last week said it will make cuts in its equities and investment banking businesses.
Deutsche wants costs below 65 percent of income from a hefty 83 percent in the second quarter and a post-tax return on equity of at least 12 percent by 2015. The bank previously targeted a pre-tax return on equity of 25 percent, but managed only 6.8 percent in the second quarter. Like many others, it has scaled back expectations as holding more capital depresses returns.
CFO Stefan Krause said that, given the change in capital rules, Deutsche was not being any less ambitious in its earnings target, calling the previous 25 percent goal "very comparable to our 12 percent in the Basel III world".
The bank confirmed its commitment to a universal banking model and its global footprint, saying its strategic priority was in the Asia-Pacific region, where it saw most growth.
It also plans to consolidate its real estate portfolio and may sell about 40 properties and shake up information technology. Too many infrastructure staff, Jain said, were "sitting in expensive locations in New York and London". ($1 = 0.7821 euros)
(Additional reporting by Ludwig Burger and Steve Slater; Editing by Alastair Macdonald)