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Why Deutsche Bank Scrapped Its Dividends in 2016

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Nov. 9 2016, Updated 2:04 p.m. ET

Deutsche Bank will not pay dividends for two years

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

Since its establishment in 1952, Deutsche Bank has regularly been paying dividends. Since 2009, Deutsche Bank has consistently paid annual dividends of 0.75 euros per share.

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Rationale for the dividend cut

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

John Cryan, CEO of Deutsche Bank, has been under tremendous pressure to reduce 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.

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