Deutsche Bank's new chief warns of two tough years in strategy shift

* Pretax profit target 7 bln eur in 2017, 10 bln in 2018

* Q3 bond trading business revenue up 20 pct

* Pretax loss rises to record 6 bln euros

* To cut 15,000 jobs, shed businesses employing 20,000

* Shares (Berlin: DI6.BE - news) down 7.7 pct vs 2 pct lower sector index (Adds internal profit targets)

By Arno Schuetze and Jonathan Gould

FRANKFURT, Oct (HKSE: 3366-OL.HK - news) 29 (Reuters) - Deutsche Bank (Other OTC: DBAGF - news) has warned of two tough years of dividend cuts, pay restraint and thousands of job cuts as new chief John Cryan admitted to grave problems in implementing strategic and cultural change at Germany's biggest lender.

Cryan, who took charge in July, is under pressure to overhaul Deutsche, which is struggling to end costly litigation from past scandals and adapt to tighter banking rules.

The bank will slash 15,000 jobs and shed businesses employing some 20,000 staff, and will sacrifice its 2015 and 2016 dividends as it seeks to bolster its finances and retain money to pay for sins of the past.

"I do not think that 2016 and 2017 will be strong years," Cryan told a news conference on Thursday.

The extended recovery period was taken negatively by many in the market. "That's a long time and shareholders are wondering why they should stay invested," said a Frankfurt-based trader.

Deutsche Bank declined to comment on its profit goals, but a source familiar with the bank said it had set itself internal pretax profit targets of 7 billion euros ($7.7 billion) for 2017 and 10 billion for 2018.

Deutsche Bank shares, which had risen last week to a two-month high, slid 7.7 percent to 25.35 euros by 1445 GMT.

"Deutsche Bank does not have a strategy problem. We know exactly where we want to go. But we have had a grave problem in implementing it," Cryan said, addressing reporters in German, in contrast to his predecessor Anshu Jain who regularly drew criticism for never mastering the language.

Nicholas Melhuish, head of global equities at Amundi Asset Management, one of Deutsche's 10 largest investors, said Cryan is doing the right things and with greater conviction than his predecessor. "But as we all know, anything involving profound culture change often turns into a life's work and is difficult to execute consistently," he said.

"This is going to be a long haul."

Co-CEO Juergen Fitschen acknowledged the bank has not yet done enough to reform. "Cultural change ... needs to be filled with content. What we have brought about is only the beginning," Fitschen said.

Deutsche Bank's staff will feel the pain in their pay packets, with remuneration linked more to profits and less to revenue. "I have said that it would not be all sweetness and light," Cryan said, adding it would be unacceptable not to share some of the cost of the settlement of interest-rate rigging and consequences of poor past behaviour.

NOT AMBITIOUS ENOUGH

Asked about prospects for bonuses for the board in the face of an expected full-year loss in 2015, Cryan said it was up to the supervisory board to decide on payouts.

In its second-biggest job cuts ever, the lender is to axe 9,000 full-time jobs and 6,000 external contractor positions. Three quarters of the other 20,000 jobs to go are at retail unit Postbank, which Deutsche Bank is spinning off.

"We were concerned that our shareholders thought cost-cut goals were not ambitious enough. We think they are realistic based on the need to remain competitive," Cryan said.

Deutsche Bank had said late on Wednesday it would not pay a dividend for this year and next, the first time it has not done so since its post-World War Two re-establishment in 1952.

As part of the overhaul, Deutsche Bank is splitting its investment bank in two and downsizing operations, severing ties with 50 percent of its clients to concentrate on the relatively small portion that produce most of the revenue.

While Credit Suisse, which also intends to slim down its investment bank, plans to raise 6 billion Swiss francs ($6 billion) from investors to bolster its capital, Deutsche has not so far signalled it is considering such a step.

"It (Other OTC: ITGL - news) would be a very positive signal if Deutsche Bank ruled out a capital increase as part of the strategy plan," said fund manager Helmut Hipper at Union Investment, a large shareholder.

Deutsche posted a 20 percent rise in revenue at its lucrative bond trading business in the third quarter, helping take the sting out of a record 6 billion euro group pretax loss.

The bank is exiting 10 countries, including most of its Latin American operations, and moving Brazil trading activities to other hubs. ($1 = 0.9123 euros) ($1 = 0.9893 Swiss francs)

(Additional reporting by Katrhin Jones and Daniela Pegna in Frankfurt, with Sinead Cruise in London; Editing by Georgina Prodhan and David Holmes)