John Cryan’s overhaul plan
Investors worried about Deutsche Bank’s bankruptcy are now looking at co-CEO John Cryan’s plan to restructure the company’s operations and get it back to profitability. Many analysts (SPY) believe its overhaul plans aren’t reaping the intended benefits. Slowing economic growth, along with all-time low interest rates, is troubling the lending business, and energy loans are going bad. Further, stricter regulations mean added legal and compliance costs for these banks, which puts additional pressures on their top line.
Cryan’s efforts to spin off Postbank—the bank’s German retail unit—are proving troublesome. The bank might have to write down the value of the business by one-third to 2.8 billion euros before it can proceed. In October 2015, Cryan announced plans to cut the workforce by nearly 25%. To add to the trouble, analysts at Morgan Stanley (MS) have forecast litigation charges of nearly 3.9 billion euros for 2016 and 2017. Despite attempts from Cryan, investors have yet to be convinced about his ability to get the bank back on solid ground. Deutsche Bank’s credit default swaps nearly doubled, and share prices are at all-time lows.
Under its “Strategy 2020” announced last year, the company scrapped plans to pay dividends for the next two years and cut 35,000 jobs to revive the bank. The bank also said it would cut operations in ten countries and cut its investment banking clients by 50%, claiming that 80% of revenues come from only 30% of clients. It will also simplify its legal structure, eliminating approximately 90 legal entities. Cryan has been under pressure to overhaul the bank after litigation expenses and the market rout in Asia pushed its valuation much lower than its rivals.
Investors looking for ETF exposure to Deutsche Bank or peers UBS and Credit Suisse (CS) could invest in the iShares U.S. Preferred Stock ETF (PFF) or the Vanguard FTSE All-World ex-US ETF (VEU). Deutsche Bank forms 0.86% and 0.10% of PFF and VEU’s holdings, respectively.
Read on as we discuss some of the initiatives the bank has undertaken to revamp its cost structure.