Why Deutsche Bank Scrapped Dividends in 2016

Deutsche Bank will not pay dividends for two years

Germany-based Deutsche Bank (DB) has cut dividend payments for 2015 and 2016 as part of its plans to strengthen the bank’s capital. The bank also mentioned that it would continue to pay dividends from 2017 onwards at a “competitive payout ratio.”

Since its establishment in 1952, Deutsche Bank has been regularly paying dividends. Since 2009, Deutsche Bank has been consistently paying annual dividends of 0.75 euros (about $0.82) per share.

Why Deutsche Bank Scrapped Dividends in 2016

Rationale for the dividend cut

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

Why Deutsche Bank Scrapped Dividends in 2016

Meanwhile, Deutsche Bank Chief Executive Officer John Cryan has been under tremendous pressure to cut down on 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.