About Boaz Schwartz & Deutsche Bank New Plan

Deutsche Bank, the German financial institution, recently announced its plans to undergo a restructuring. It announced it three weeks ago, and operations are already underway to begin the project. The restructuring will be taking place over the next four years, to be completed by 2022. Reports from employees of the bank suggest that this will be the last restructuring to be undergone by the German lender.

The plan

One of the more significant goals of this restructuring is to reduce the Bank’s expenses. The organization believes that the undertaking can cut down costs across several levels of its operations. The cut costs will come in the form of Department trimming and downsizing. Across the departments affected, the bank will be legging go of about 18,000 employees or a fifth of its workforce. By this, Deutsche Bank expects its cost to drop by a quarter, or $17 Billion by the end of 2022.

Another step in the restructuring will see the bank’s exit from global equities sales and trading business. This will be its second most significant action after the downsizing. Deutsche Bank states that services such as share-underwriting will still be offered, and it will retain its leveraged finance division. However, this retention raises some questions about how committed the bank, and especially its CEO, Christian Sewing is to truly exiting the trading of equities.

In Exiting the equities trading space, Deutsche Bank marks the end of its attempts to compete with wall street banks like JP Morgan and Goldman Sachs. The division has been losing money, and the bank can no longer compete.

Investment banking is gradually becoming what can be considered an arms race, in both volume and technology, and Deutsche Bank is not the first to realize this. Several other European banks observed it is recent years, as UBS and Credit Suisse underwent the same equities aversive restructuring in 2012 and 2015 respectively. Deutsche Bank seems to be at the tail end of the trend.

In pulling out of these business divisions, the bank has plans to focus on retail-banking customers and European companies. It intends to strengthen some of its divisions, namely asset management, currency trading, corporate-cash management, and trade finance.

Possible challenges

The most significant challenge the bank is expected to face is falling below its required minimum 12.5%  CET1 ratio. Even though Deutsche Bank projects an 8% return on tangible equity by 2022, experts fear this projection may be a little ambitious, considering Germany’s negative bond yields. The Bank may thus be forced to raise capital if it spends too much during its restructuring.

However, this change in business structure isn’t too appealing to investors, as the bank’s shares have dropped 8.2% since it announced the restructuring. This loss is most likely due to the bank’s estimation of a $2.8 Billion Loss in 2019’s Q2. The estimation also suggests that the bank will not be profitable until 2020 or 2021.

Affected by the costs incurred through restructuring, the bank’s earnings are projected to reduce by 6, 100% in 2019. However, by 2020, they are expected to rebound with a growth of 335%. For the past three years, Deutsche Bank has been valued at an average P/E to the rest of the foreign banking industry.

In the long run, Deutsche Bank could benefit from this restructuring. By allowing it to focus on historically profitable areas, the bank’s restructuring could mean positive growth and progress. However, this is with some risk, in the form of expensive reorganization and additional scrutiny. The bank will have to execute the restructuring masterfully if it’s going to be solvent and profitable by 2022.

Deutsche Bank is a German investment bank and financial services company that was established in 1870. As of April 2018, it is the 15th largest bank in the world, ranked by total assets. It is also the largest German banking institution in the world with operations in 58 countries.

Dr Boaz Schwartz is a managing director at Deutsche Bank, and he heads the bank’s diverse range of activities in Israel. His influence in the bank’s progress cuts across every sphere. Politically, he actively promotes and supports all of the bank’s business in Israel through C-level and government relationships. He also holds a deep relationship with Israeli technology thought leaders globally and top VCs with Israeli Nexus. Since he joined the Deutsche Bank, he has established it as one of the leading foreign banks in Israel. Some of his recent transactions include the discount investment acquisition of Cellcom, and Saba-Apax-Arkin acquisition of Bezeq.