May 24, 2018 / 2:05 PM / 3 months ago

Deutsche to cull equities platform

LONDON, May 24 (IFR) - Deutsche Bank is to cut a quarter of its equities sales and trading jobs as part of its wider plan to trim 7,000 positions across the bank to 90,000, with the main casualties in non-electronic roles and less lucrative parts of prime finance.

The bank said 600 roles had already gone across the corporate and investment bank since chief executive Christian Sewing was appointed to succeed John Cryan in early April. Sewing had already said he wanted to reduce unprofitable areas, such as US rates trading.

A key driver of the latest cuts is to reduce the CIB’s leverage exposure from the reported €1.05trn at the end of March. Deutsche wants this to drop by €100bn by the end of next year, with €50bn coming from removing services for some prime finance clients and reducing the book by 25%.

UBS analyst Daniele Brupbacher estimated as many as 2,000 equities jobs could go. “This ... could yield more than €1bn of cost savings,” he said . Other analysts suggested the number would be lower. Deutsche declined to comment.

Sewing told shareholders at the bank’s annual general meeting on Thursday that the reductions would help meet his target of capping costs at €23bn this year and €22bn next year. Deutsche also said it will aim for a 10% post-tax return on equity from 2021.

The job cuts across the group will only incur a €800m one-off charge, he said, as not replacing leavers and imposing hiring freezes will reduce severance costs. He reiterated his resolve to make Deutsche a “trustworthy” bank again, for clients and shareholders.

“If we publish targets we must meet them,” he said, cautioning that the cuts this year will hit trading in the CIB. “In the second quarter the revenue environment remains challenging. The restructuring will impact our results this year.”

Supervisory board chairman Paul Achleitner acknowledged the bank had not been as disciplined previously in meeting targets in this area.

“Well formulated plans and promised measures had not been executed with sufficient discipline or rigour,” he said. “An alarming symptom was cost development – and the most striking element was in the size of our workforce.

“You rightly expect management to achieve goals set but if they are at risk then the supervisory board has to take quick and decisive action,” he told shareholders, explaining why Sewing’s predecessor John Cryan had so swiftly gone in April.

He said an internal candidate had always been preferred but two external ones had also been shortlisted but not Bill Winters nor Jean Pierre Mustier, chief executives of Standard Chartered and UniCredit, respectively. He said he was also investigating leaks surrounding the appointment.

CUTTING BACK

As well as reducing global equities and US rates severely, Sewing said the number of senior managers was being cut. On his appointment, the management board had been refined to remove co-heads of its major businesses, CIB and private banking.

He said the bank was now looking to reduce the two layers below the top rank. “We’re in the process of significantly slimming down the two layers below the management board. Smaller committees, less hierarchy and more individual responsibility – that’s our motto.”

Sewing is also targeting IT costs and promised to update investors on more details on costs and returns on equity.

Soon after his appointment, Sewing said he wanted to ensure that the more volatile investment banking activities, beyond transaction banking, accounted for only a third of overall revenues. Within that he wanted to refine where Deutsche stands out.

“We have to focus on what we really do well and where we realistically stand a chance of occupying a top position in businesses where we operate,” said Sewing. “We need to reduce the volatility of our earnings; it won’t do us any harm to be a bit more boring.”

He intimated that equities capital markets would remain a core part of Deutsche’s operations alongside its larger debt underwriting arm. “We are committed to capital markets business,” he said.

“We are staying international, acting in more than 60 countries. We want to offer a network to accompany German companies abroad. And we have to offer them more than loans,” he said, specifying its leading positions in global transaction banking and FX.

“This is not financial acrobatics and has nothing to do with gambling.”

Sewing said the bank wanted to retain its significant competitive advantage in other areas such as credit trading. It will also work to maintain its positions in corporate advisory and financing in selected sectors, such as high-yield bonds and commercial real estate.

“We will focus on what we do well and scale back in some areas,” he said. “Where we decide to stay we will expand and capture market share. We want to remain Europe’s leading CIB with a global network.”

He dismissed criticism from some investors before the AGM that the plan was not radical enough. “I take proposals like this seriously. I am all for being radical but first and foremost I am responsible.” (Reporting by Christopher Spink)

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