Deutsche Bank to Review Investment Bank, Might Cut Jobs

Deutsche Bank Aktiengesellschaft DB is organizing a thorough review of its major revenue contributing segment — Corporate & Investment Bank (“CIB”) — as its performance has been declining consistently over the past few years, impacted by low volatility and client activity levels. The review process is being conducted under the name of Project Colombo, per a Bloomberg article.

Background

The past few years have been tough for Deutsche Bank due to numerous litigations and regulatory proceedings in and outside Germany and unstable European economy. These factors impacted profits greatly, bringing the bank on the edge of a great fall.

Before its capital raise in March 2017, the bank had set several targets for achieving a turnaround. Among these, it had disclosed plans to merge corporate finance, global markets and global transaction banking businesses into one unit — CIB.

CEO John Cryan expects this move to make the bank simple and stronger, resulting in improved services and better resource allocation.

Despite the overhaul and efforts to improve the segment’s performance, CIB’s net revenues continued to decline. Moreover, at an investors’ conference held recently in London, chief financial officer, James von Moltke, left an impression that the segment’s first-quarter 2018 revenues might decline about €450 million from the year-ago quarter owing to foreign exchange headwinds and higher funding costs.

This news hurt the bank’s investor sentiment greatly, post which, rumors of Deutsche Bank’s Chairman Paul Achleitner looking for suitable replacement for Cryan surfaced. However, Cryan has put the rumors to rest by confirming his plans to continue delivering the targets he had laid down during the capital raise in a message sent to the employees.

He said, “I just wanted to reaffirm that I am absolutely committed to serving our bank and to continuing down the path on which we started some three years ago.”

Project Colombo and Motive Behind It

Evaluation of the investment bank is being conducted globally with special focus on the United States. The CEO plans to determine if the bank should try taking back market share or exit from business where it is trailing competitors.

Through this review, Cryan aims to identify areas where it is possible to cut jobs or reduce costs in order to help restore profitability. Per the article, the cuts will be done across the equities and fixed income operations as they are costly and have not performed well over a long time. However, the extent of cuts remains uncertain due to the bonuses grabbed by recently traders as the bank’s efforts to retain them.

Our Take

Though Deutsche Bank’s overhaul is in full swing, shareholders have reached end of their patience. Further, the fate of Deutsche Bank remains uncertain as the interest rates continue to remain at low levels and affect its revenues. Further, involvement in legal hassles continues to hurt its reputation.

Shares of Deutsche Bank have declined 20.2% over the past year on the NYSE against 9.3% rally recorded by the industry.

 

Deutsche Bank carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the same space are ING Group, N.V. ING, BanColombia S.A. CIB and The Toronto Dominion Bank TD. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for ING Group has been raised 2.4% for the current year, in the last 60 days. The company’s share price has jumped 12.2% in the past year.

BanColombia has witnessed 7.3% upward earnings estimate revision for 2018, in the last 60 days. Its share price has risen 3.1% in the past year.

Toronto Dominion’s shares have gained 13% in a year and its earnings estimates for 2018 have moved up 5% in the last 60 days.

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Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
 
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