In order to endure the sluggish investment banking and strict
regulatory environment, Deutsche Bank AG (DB) announced additional
expense management measures and reduction of risky assets. The
revamp follows a 100-day evaluation made by the new co-CEOs -
Juergen Fitschen and Anshu Jain.
Deutsche Bank plans to reduce the annual costs by €4.5 billion
($5.8 billion) by 2015. As part of it, the company will primarily
slash more than 1900 jobs, mainly in the investment banking
division. Further, the bank plans to reduce businesses at upscale
locations such as New York and London as well as close its
ineffective IT platform so that it can invest in a modified
one.
Moreover, the bank strives to transform the compensation
practices, which has been a primary concern for the investment
banking industry. Hefty bonus payments have led to risky behavior
on part of top management. The new policies implemented will
include the chief executives of the company having their bonuses
paid after five years, instead of the present practice of
part-payment over a span of three years.
Also, in case of a reduction in profit levels of the bank or any
instances of transgression, bonuses will be scrapped. The primary
aim is to reduce risky decisions taken by the higher officials that
are beneficial on a short-term basis, but bring long-term
hazards.
Further, the bank announced that it has plans to streamline the
investment banking division to reduce over dependency on this
business.
Also, by trimming down risky assets, it will enhance the capital
position as stipulated by the Basel III regulations. For this, the
bank will shift €125 billion ($161.1) of risky assets to a non-core
division. However, to keep pace with its peers in this
regard, the bank still needs to undertake more effective measures.
Management expects capital reserves to improve to considerably
higher levels by 2015.
Moreover, the company has lowered its profit standards. It will
target an after-tax return of 12% on equity (ROE), a considerable
reduction from the previously targeted 25%.
Deutsche Bank, Germany's largest bank with large domestic retail
operations, is one of the leaders in global banking. However, due
to the recent financial crisis in the European markets, its
earnings fell considerably. The company's earnings in the second
quarter of 2012 plummeted 45% year over year to €661 million
($852.0 million) and revenues went down 6% to €8.0 billion ($10.3
billion). We believe that the aforementioned measures will help the
bank augment its declining revenues.
Similar to Deutsche Bank, in July this year, Ohio-based KeyCorp
(KEY) announced its plans to commence cost-curtailing measures to
improve efficiency. The measures include closure of branches as
well as job cuts.
Deutsche Bank currently retains a Zacks #4 Rank, which
translates into a short-term Sell rating.
In order to endure the sluggish investment banking and strict
regulatory environment,
Deutsche Bank AG
(
DB
) announced additional expense management measures and reduction of
risky assets. The revamp follows a 100-day evaluation made by the
new co-CEOs - Juergen Fitschen and Anshu Jain.
Deutsche Bank plans to reduce the annual costs by €4.5 billion
($5.8 billion) by 2015. As part of it, the company will primarily
slash more than 1900 jobs, mainly in the investment banking
division. Further, the bank plans to reduce businesses at upscale
locations such as New York and London as well as close its
ineffective IT platform so that it can invest in a modified
one.
Moreover, the bank strives to transform the compensation
practices, which has been a primary concern for the investment
banking industry. Hefty bonus payments have led to risky behavior
on part of top management. The new policies implemented will
include the chief executives of the company having their bonuses
paid after five years, instead of the present practice of
part-payment over a span of three years.
Also, in case of a reduction in profit levels of the bank or any
instances of transgression, bonuses will be scrapped. The primary
aim is to reduce risky decisions taken by the higher officials that
are beneficial on a short-term basis, but bring long-term
hazards.
Further, the bank announced that it has plans to streamline the
investment banking division to reduce over dependency on this
business.
Also, by trimming down risky assets, it will enhance the capital
position as stipulated by the Basel III regulations. For this, the
bank will shift €125 billion ($161.1) of risky assets to a non-core
division. However, to keep pace with its peers in this regard, the
bank still needs to undertake more effective measures. Management
expects capital reserves to improve to considerably higher levels
by 2015.
Moreover, the company has lowered its profit standards. It will
target an after-tax return of 12% on equity (ROE), a considerable
reduction from the previously targeted 25%.
Deutsche Bank, Germany's largest bank with large domestic retail
operations, is one of the leaders in global banking. However, due
to the recent financial crisis in the European markets, its
earnings fell considerably.
The company's earnings in the second quarter of 2012 plummeted
45% year over year to €661 million ($852.0 million) and revenues
went down 6% to €8.0 billion ($10.3 billion). We believe that the
aforementioned measures will help the bank augment its declining
revenues.
Similar to Deutsche Bank, in July this year, Ohio-based
KeyCorp
(
KEY
) announced its plans to commence cost-curtailing measures to
improve efficiency. The measures include closure of branches as
well as job cuts.
Deutsche Bank currently retains a Zacks #4 Rank, which
translates into a short-term Sell rating.
DEUTSCHE BK AG (DB): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research