Investors worried about Deutsche Bank’s (DB) bankruptcy are now looking at Chief Executive Officer John Cryan’s plan to restructure the company’s operations to get it back into profitability. But many analysts believe that the bank’s overhaul plans are not reaping the kind of benefits that were envisaged.
Slowing economic growth and all-time low interest rates are troubling the banks’ lending business while energy loans are going bad. Further, stricter regulations mean added legal and compliance costs for these banks, which are putting additional pressure on their top lines.
Last year, Deutsche Bank announced plans to cut its workforce by nearly 25%. Despite attempts by Cryan, investors aren’t yet convinced about his ability to get the bank back on solid ground. Deutsche Bank’s credit default swaps, contracts that provide protection against bond defaults, have nearly doubled and share prices are at all-time low levels.
Under its “Strategy 2020” announced last year, the bank scrapped plans to pay dividends for the next two years and cut 35,000 jobs as part of its plans 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 the 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 mounting litigation expenses and pending lawsuits have pushed the bank’s valuation much lower than its rivals (EUFN) Royal Bank of Scotland (RBS), UBS, and Credit Suisse (CS).
Deutsche Bank's (DB) shares are trading at the steepest discount to its book value since the 2008 financial crisis.
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