Deutsche Bank to expand cost-cutting plans

Deutsche Bank has expanded its cost-cutting plans with its CFO saying a previous target of bringing expenses down to €21bn by 2021 was not ambitious enough.

Speaking at a conference in London on Wednesday, James von Moltke told analysts that the bank’s internal planning implied that “expenses need to be lower, potentially substantially lower that €21bn” by 2021.

Over the summer, the lender stopped repeating its €21bn target, raising concerns it would be dropped. Mr von Moltke on Wednesday explained that Deutsche had done this because after next year, it wants to focus on its cost-income ratio rather than on absolute expenditure.

In October, the bank confirmed it was on track to lower costs this year by €900m to €23bn, and to cut another €1bn next year. Analysts on average expect Deutsche to meet its cost targets this year and next, but they predict that non-interest expenses will be about €21.6bn in 2020.

At the start of this year, Deutsche spooked investors by admitting costs would be €1bn higher than planned. This miss was one of the factors that led to chief executive John Cryan’s dismissal in April.

Under new chief executive Christian Sewing, Deutsche has cut 2,300 jobs and wants to lose another 4,700 by the end of 2019, aiming to bring its total headcount below 90,000.

Mr Sewing told analysts in October that the restructuring of its struggling investment banking division was done, after lay-offs and balance sheet reductions.

US hedge fund Hudson Executive Capital subsequently bought a 3.1 per cent stake in Deutsche, betting Germany’s largest lender would finally emerge from years of losses and turmoil.

However, one person close to a large Deutsche shareholder told the Financial Times that this investor doubts that restructuring has gone far enough, and that the US investment bank business is still relatively large and needed to be cut further.

In the first nine months of 2018, Deutsche’s corporate and investment banking revenue fell 9 per cent year-on-year, while its costs rose 1 per cent, resulting in a 54 per cent drop in pre-tax profit.

At the same time, its cost-income ratio rose 4.9 percentage points to 90.3 per cent. The lender has promised to bring it down to 70 per cent by 2020 and to 65 per cent a year later.

Analysts are currently predicting a 2020 cost-income ratio of 84.3 per cent.

Alexandra Annecke, a fund manager at Frankfurt-based Union Investment, which owns a 0.5 per cent stake in Deutsche, said that while the bank’s 2019 target of earning a 4 per cent return on tangible equity seemed realistic, its medium to long-term prospects remained challenging because of a difficult market environment and years of under-investment in IT.