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Will Deutsche Bank’s Overhaul Plan Work?

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Strategy 2020

Investors who are concerned about Deutsche Bank’s bankruptcy are looking at CEO John Cryan’s plan to restructure the company’s operations to regain its profitability. Many analysts think that its overhaul plans aren’t reaping the kind of benefits that were envisioned. Slowing economic growth along with all-time low interest rates are troubling the lending business and energy loans are going bad. Also, strict regulations mean added legal and compliance costs for the banks. Regulations are putting additional pressure on the bank’s top line.

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In October 2016, Cryan announced plans to reduce the workforce nearly 25%. Recently, the bank cut senior management’s bonuses. Despite Cryan’s attempts, investors still aren’t convinced about his ability to get the bank back on solid ground. Deutsche Bank’s (DB) credit default swaps, a contract that provides protection against a bond default, has nearly doubled and share prices are at all-time low levels.

Under its “Strategy 2020” announced in 2015, the company 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 that it would cut operations in ten countries. It would cut its investment banking clients by 50% claiming that 80% of the revenues come from only 30% of the clients. It would simplify its legal structure and eliminate ~90 legal entities. Cryan has been under pressure to overhaul the bank (EUFN) after litigation expenses pushed the bank’s valuation much lower than its rivals Credit Suisse (CS), UBS, and Royal Bank of Scotland (RBS).

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