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Why Deutsche Bank Is Scrapping Dividends for 2016

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Deutsche Bank will not pay dividends for two years

Germany-based Deutsche Bank (DB) announced plans to cut dividend payments for 2015 and 2016 as part of its plans to strengthen its capital. The bank also mentioned that it would continue to pay dividends from 2017 onward at a “competitive payout ratio.” Ever since its establishment in 1952, Deutsche Bank has paid regular dividends. Since 2009, Deutsche Bank has been consistently paying an annual dividend of 0.75 euros per share. This translates to a dividend yield of 4.1% based on the closing price of 18.09 euros on March 17.

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Rationale for the dividend cut

Deutsche Bank outlined company-wide financial targets aimed at cutting costs, reducing debt, and lowering the amount of assets exposed to potential losses. Deutsche Bank’s cost-to-income ratio has soared to 180%. This is partly due to exceptional losses, but costs are generally high compared to those of competitors, even in divisions not affected by losses.

John Cryan, co-CEO of Deutsche Bank, has been under tremendous pressure to cut down on expenses, strengthen capital, and drive value for shareholders. European banks (EUFN) like UBS (UBS), Credit Suisse (CS), and Royal Bank of Scotland (RBS) have been grappling with high costs and tougher regulatory requirements in the wake of the sovereign debt crisis.

Continue reading for a recap of Deutsche Bank’s 4Q15 earnings.

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