Deutsche Bank (DB, Financial) has revealed its decision to cut down on its annual costs by a whooping $3.8 billion or almost 3.5 billion euros. The main reason for this plan is to reduce the ownership in the Postbank consumer sector and reduce securities business. This news comes as a major strategic shift so as to increase the profit-earning capacity of the bank. Shares rose 0.32% at $34.26 on Friday on a volume of 915,000 shares. Stocks in Germany increased 0.53% and closed at 31.58 euros on 6.2 million shares.
Strategizing for future
The Germany-based company said that it wished to obtain a minimum of 10% return on tangible equity on a medium term basis. The bank has also decided to cut down operations in many countries by 15 percent in the next five years. The company has not been able to meet its targets in the prior years. It seems that this strategic decision is CEOs Juergen Fitschen and Anshu Jain's biggest one since their failure to achieve targets. Shareholders have expressed their frustration over the bad performance of shares during their reign as CEOs. Moreover, the bank seems to running in troubled waters due to their legal costs coupled with capital buffers.
The bank might exit from around 70 countries where it currently has its operations. They have also decided to invest a greater chunk in the investment banking division along with asset & wealth management sector and retail businesses. Both the CEOs Mr. Juergen and Mr. Anshu said that the company should focus more on servicing certain geographic areas. Though the company wishes to remain global, the 1870-founded bank should divert its attention to maintaining "attractive client relationships," they said. The bank also wishes to be client-centric along with remaining universal, they said in a statement.
Q1 financials
The bank reported a 50% fall in the Q1 profit for a period ended March 31. The main reason for the decline was the high expenditure of around 1.5 billion euros on litigation costs. Therefore, the net earnings fell from 1.1 billion or 0.98 euros for the same period last year to 559 million or 0.38 a share this first quarter. On a positive note, the revenues showed a positive growth increase of 24%. The reported revenues last year was 8.4 billion as compared to this quarters' revenue of 10.4 billion euros. The IBIT (Income Before Income Taxes) was 1.48 as compared to the 1.7 billion euros for the same period last year. Therefore, a 12% decline in IBIT was seen. Revenue at various segments like asset and wealth management, private and business clients segments, corporate banking and securities,etc. saw an increase.
Investors take
The German global banking and financial services company may buy shares in Postbank, of which they do not have ownership. This, in all probability, will take place before a stake in the company is sold to the general public by the finish of the next year. Investors can expect an increase in the next quarter revenue due to the strategic plans of the CEOs. If everything works out smoothly. the asset and wealth management unit will show a rapid growth rate. Besides, the stronger U.S. dollar works in the favor of the bank. A positive point to be noted is that the bank has a hold on its dealing divisions while competitors UBS (UBS, Financial) and Barclays (BCS, Financial) have totally exited from the trading unit. The bank has also positioned itself as “last man standing” in investment banking, giving it an added advantage over its rivals. Now, what investors and shareholders can do is wait to see if the strategy proves to be effective so as to receive a higher return on their shares.
