Deutsche Bank plans major revamp to reinvent itself

Investors agree that the move is in the right direction.

Having suffered significant losses, Deutsche Bank is planning on raising more capital as well as overhaul its business structure in order to reinvent itself.

The strategic decision to revamp its operations was taken at a supervisory board meeting took place on Sunday on the backdrop of the bank posting a net loss of 1.4 billion euros in 2016.

Unfortunately for Deutsche Bank, since 2012, a series of scandals have hammered its balance sheet.

“On strategy, it’s obvious we had a change of heart,” said John Cryan Deutsche Bank’s CEO on a call with journalists on Sunday. “These measures will make Deutsche Bank stronger and place us back firmly on a path to sustainable growth”.

The bank now plans on launching a $8.5 billion (8 billion euro) rights issue of 687.5 million new shares on March 21, which will have a discount of 39% as of Friday’s closing price of 19.14 euros.

Deutsche Bank has also disclosed, it plans on listing a minority stake in its asset management business and sell off other assets in order to further raise 2 billion euros.

After the rights issue its capital ratio should be well over 13%.

In 2015, Deutsche Bank had separated its securities trading division, its cash cow, from its corporate finance division. It now plans on reuniting them.

In a change of strategy Deutsche said both divisions will be merged with its transaction banking group, which will now predominantly focus on serving corporate clients rather than institutional investors such as hedge and pension funds.

In another volt-face, Deutsche also decided to scrap its earlier plan on selling its Postbank unit, saying it was unable to get an acceptable price for it. Thus, it plans on reintegrate the unit’s operations into its German retail business.

“We are very positive over prospects of banking in Germany,” said Cryan.

This essentially means, the bank will now have three business divisions: a commercial and a private bank focused on Germany, an asset management business and a corporate and investment bank.

In order to see through this revamp successfully, Deutsche will promote Christian Sewing, the head of its retail banking as a co-head of its investment bank alongside Garth Ritchie, while the head of its finance division, Markus Schenck is set to oversee the revamp process as a co-deputy to Deutsche’s CEO.

Jeffrey Urwin, the head of its corporate and investment banking, is expected to step down later this year.

“The announced measures are an important signal for the capital market that the bank is now focusing more on its future and its customers after years of dealing with the past,” said Ingo Speich, a fund manager at Union Investment.

“The fact that they are doing a capital raising is no surprise. It has been rumored for long. The sale of a minority stake in the asset management is something in the right direction,” said a source who spoke on the condition of anonymity.

The rights issue will initially be underwritten by Barclays, BNP Paribas, Commerzbank, Credit Suisse, HSBC, Goldman Sachs, Morgan Stanley and UniCredit.

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Categories: Creativity, Entrepreneurship, HR & Organization, Strategy

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