Deutsche Bank AG announced more cost reductions and said it’s working to exceed its medium-term revenue targets as rising interest rates lift income at the corporate bank.
(Bloomberg) — Deutsche Bank AG announced more cost reductions and said it’s working to exceed its medium-term revenue targets as rising interest rates lift income at the corporate bank.
The German lender plans to cut an additional €500 million in expenses this year, bringing total savings to €2.5 billion, by reducing headcount and making improvements to the mortgage platform and retail network, according to a statement Thursday.
Earnings at the corporate bank jumped 35%, allowing Deutsche Bank to post its strongest top line since 2016. The one sore spot: A 17% drop in fixed-income trading that left the firm trailing Wall Street peers for a second straight quarter.
Chief Executive Officer Christian Sewing is increasingly leaning on the corporate and private bank to drive growth as the trading boom of the past years peters out and Europe emerges from its experiment with negative interest rates. While he’s cutting back-office staff, Sewing also announced selective hiring in the corporate bank, investment bank and wealth management in an effort to beat a target for annual revenue growth of around 4% through 2025.
The new cost cuts will include a reduction of 5% in “senior non-client facing” staff, Sewing said in remarks prepared for an analyst call that were published on the website. The lender is also imposing a “strict limitations” on new hirings for the backoffice, the bank said.
To support expense reductions, Deutsche Bank is shrinking its management board to nine members from the current ten, the lender said late Wednesday, confirming an earlier Bloomberg report. Americas head Christiana Riley is leaving in a broad reshuffle that also hands responsibility for the asset management arm to Chief Financial Officer James von Moltke.
The trading business is likely to be spared jobs cuts, people familiar with the matter said previously, as unit head Ram Nayak seeks to selectively expand into new products to offset the slowdown. Germany’s largest bank has hired dozens from Credit Suisse Group AG in recent months, including for credit trading.
The trading performance in the first quarter puts Deutsche Bank in line with Goldman Sachs Group Inc., which reported the worst fixed income result of the big Wall Street firms. Banks reported widely diverging performance in a volatile period marked by the collapse of Silicon Valley Bank and the run on Credit Suisse. Deutsche Bank itself even became a target of speculators in late March, in a selloff that underscored how the firm remains vulnerable.
The “market doesn’t understand how conservatively we’re capitalized,” von Moltke said in an interview with Bloomberg TV. The CFO also said he sees a potential for Deutsche Bank’s wealth management business to benefit from the near-collapse of Credit Suisse.
The brief scare also highlighted why Deutsche Bank has been slow to return capital to shareholders, having only just emerged from four painful years of cost cuts with a profitability that still trails many peers. While the firm promised to return as much as €8 billion to investors over the coming years, including through buybacks, it hasn’t yet announced a share repurchase program.
The German lender said on Thursday that it has started talks with supervisors about a buyback and expects to start one in the second half. A review of its risk models by the European Central Bank had delayed plans earlier.
(Updates with earnings details in table, CFO comments in ninth paragraph.)
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