What's going on?
The $1 billion of profit Deutsche Bank’s investors were expecting this year will probably now be a loss instead, according to reports on Wednesday.
What does this mean?
Deutsche Bank’s been struggling for a while, losing market share and getting embroiled in money laundering scandals. In May, the bank said it planned to restructure – but it didn’t elaborate. Now, it appears Deutsche’s planning to cut 20,000 of its 90,000 total workers, targeting riskier parts of the business like stock and bond trading in the US.
Investors had thought Deutsche’s pass in the US banking “stress tests” last week may have heralded better times ahead for the German giant. But firing people and reshaping the company in order to lower future costs could involve Deutsche Bank forking out an extra $6 billion this year.
Why should I care?
For markets: Deutsche Bank has run out of options.
Deutsche’s troubles were well signposted, so the potential cost, while large, left investors unfazed on Wednesday. Still, its stock price has fallen 25% in the last year compared to European banks’ average 15% decline. Another bailout from the German government shouldn’t be necessary if Deutsche’s restructuring plan works; Switzerland’s Credit Suisse has shown turnarounds can work. But Deutsche’s got a difficult road ahead. Having failed to agree a merger with local rival Commerzbank, it’s now looking at selling off parts of its business to competitors.
Zooming out: Santander also has an expensive cost-saving plan.
Deutsche Bank has had five CEOs since 2012. But Spain’s Santander has also struggled with executive recruitment. When it approached a senior banker from Swiss rival UBS for its top job, he duly accepted – only to see Santander withdraw its offer and leave him jobless. Santander had backed out due to the expense of the hire; but it may now be on the hook for $113 million if its would-be CEO’s lawsuit is successful.