Deutsche Bank will not pay dividends for two years
In a statement made on Wednesday, October 29, 2015, German-based Deutsche Bank (DB) announced plans to eliminate dividend payments for 2015 and 2016 as part of its plan to strengthen its capital. The bank also said it would continue to pay dividends from 2017 onward at a “competitive payout ratio.”
Since its establishment in 1952, Deutsche Bank has paid dividends regularly. Since 2009, Deutsche Bank has been consistently paying annual dividends of 0.75 euros per share.
Rationale for the dividend cut
In its rationale for cutting dividends, Deutsche Bank outlined company-wide financial targets aimed at cost cutting, reduction of debt, and lowering the amount of assets exposed to potential losses. Deutsche’s cost-to-income ratio has soared to 180%. This is partly due to the exceptional loss, but costs are generally high compared to competitors, even in divisions not affected by the loss.
Deutsche Bank’s chief executive officer, John Cryan, has been under tremendous pressure to cut down on expenses, strengthen capital, and drive value for shareholders. This began after the bank became the worst valued stock among global banks (XLF) such as UBS, Credit Suisse (CS), Goldman Sachs (GS), and JP Morgan (JPM).
European banks (EUFN) have been grappling with high costs and tougher regulatory requirements in the wake of the sovereign debt crisis. Recently, Deutsche Bank’s rival Credit Suisse (CS) announced it is planning to sell shares rather than cut back on dividends.