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Why Deutsche Bank Won’t Pay Dividends in 2016

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Deutsche Bank scraps 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 regularly paid dividends. Since 2009, Deutsche Bank has been consistently paying annual dividends of 0.75 euros per share.

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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 the exceptional loss it took, but its costs are generally higher than those of competitors, even in divisions not affected by the loss.

Co-CEO John Cryan has been under tremendous pressure to cut expenses, strengthen capital, and drive value for shareholders. European banks (EUFN) like 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.

In the last part of this series, we’ll discuss analysts’ ratings and consensus target price for Deutsche Bank.

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