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Deutsche Bank Streamlines Units; Announces Managerial Changes

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Frankfurt-based German lender - Deutsche Bank AG 's DB Supervisory Board unveiled its plan of restructuring business segments along with reshuffling of executive committees and senior management changes. The move follows the bank's Strategy 2020 revealed in April, which intended to change the bank's operating model to achieve higher efficiency, reduction in complexity, better resilience and resolvability.

Notably, the bank aims to achieve annual gross savings of €3.5 billion by 2020. Of these, around 60% by efficiency improvements are targeted to realize through digitization, infrastructure adjustments and other measures. The remaining 40% is expected to be realized from streamlining operations through offloading of unprofitable businesses, focusing on geographic footprint and branch closures. We believe gradual achievements in the strategy will support bottom-line expansion.

Segments' Restructuring

Currently, the bank is operating through five divisions: Corporate Banking & Securities Corporate Division (CB&S), Global Transaction Banking Corporate Division (GTB), Deutsche Asset & Wealth Management Division (DeAWM), Private & Business Clients Corporate Division (PBC) and Non-Core Operations Unit Corporate Division (NCOU).

As per the new structure, to be effective from Jan 1, 2016, the CB&S division will be divided into two business segments. As announced by the bank, a new segment named Corporate & Investment Banking will be created by merging the Corporate Finance business from CB&S segment and GTB segment. Further, sales and trading activities under the CB&S division will be pooled under the new business segment named - Global Markets. However, the CB&S segment will no longer exist.

Additionally, Private Wealth Management will serve high net worth clients and will form a separate unit under the PBC segment. Moreover, Deutsche Asset Management will operate as an individual segment serving mainly institutional clients and focusing on the funds business.

Managerial Changes

Along with segments' reorganization, Deutsche Bank will also make significant changes in managerial roles. Effective Jan 1, 2016, with the eradication of The Group Executive Committee (GEC), the newly structured four core business divisions will be represented straight on the Management Board. Moreover, four Senior Group Directors will supplement the ten-member Management Board.

Paul Achleitner, Chairman of the Supervisory Board, said: "Deutsche Bank rarely underwent such a fundamental reorganization in its history. This also requires tough decisions. I would like to stress that all parties involved have tried to achieve the best possible outcomes for Deutsche Bank, having set aside personal interests. For this, and for their contributions in the past years, we would like to thank those executives leaving the company."

John Cryan, Co-Chief Executive Officer of Deutsche Bank, said: "We want to create a better controlled, lower cost, and more focused bank that delivers long-term value to shareholders and great experiences to clients. The new structure and management team are essential to getting this done. I am delighted to welcome six new members to the Management Board to form the team that together will build a better Deutsche Bank."

Conclusion

The bank's new CEO, John Cryan, who succeeded co-CEO Anshu Jain in June, is expediting efforts to revamp the bank. In a Jul 1 memo, Cryan has pressed for the need of simplifying the bank's business model, reducing costs and pulling back unprofitable businesses. We believe gradual execution of the restructuring moves should support the growth prospects of the company.

While the new CEO of Deutsche Bank looks all proactive, it is really difficult to state how much the bank will gain under his leadership or to what extent the bank's performance will get a boost, given the current headwinds it is facing. As the European economy is yet to stabilize, we don't foresee any significant favorable change in the company's performance in the near term.

Deutsche Bank currently carries a Zacks Rank #2 (Buy). Other foreign banks worth considering include Banco Macro S.A. BMA and Erste Group Bank AG EBKDY , with a Zacks Rank #1 (Strong Buy), while Grupo Financiero Galicia S.A. GGAL carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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