Can Deutsche Bank’s Overhaul Plan Help Get the Bank on Track?

Strategy 2020

Investors worried about a potential Deutsche Bank (DB) bankruptcy are now looking at the plan set forth by the company’s CEO, John Cryan, to restructure the company’s operations to return it to profitability. Many analysts are of the view that its overhaul plans are not reaping the kind of benefits that were envisioned.

Slowing economic growth, along with all-time low interest rates, is troubling its lending business and its energy loans are going bad. Further, stricter regulations mean added legal and compliance costs for European and US banks, putting additional pressures on their top lines.

Can Deutsche Bank’s Overhaul Plan Help Get the Bank on Track?

Dividends scrapped for two years

Under its Strategy 2020, which was announced in 2015, Deutsche Bank (DB) scrapped its 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 (XLF) stated 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 its clients.

This cost-cutting measure involves ~4,000 job cuts in Germany, which is part of 9,000 role reductions worldwide. DB recently announced it had sold its British insurance business, Abbey Life, to Phoenix Group Holdings.

Deutsche Bank plans to simplify its legal structure, eliminating ~90 legal entities. Cryan has been under pressure to overhaul the bank after litigation expenses and the market rout in Asia pushed the bank’s valuation much lower than its rivals.