The plan, which calls for Germany's largest lender to sell part of its consumer operation and shrink the investment bank, sent shares down the most in 15 months. Investors criticised the lower profitability target and lack of detail and questioned whether co-chief executive officers Anshu Jain and Juergen Fitschen, who have missed their goals for the past three years, will be able to deliver.
"It's not really pioneering news," said Lutz Roehmeyer, who manages about $1.1 billion at Landesbank Berlin Investment, which holds Deutsche Bank shares. "It's a general change of strategy toward investment banking, but only in baby steps. Compared to what they're planning now, I wish they would have done nothing."
The Frankfurt-based bank, under pressure to boost returns, said it wants to "remain universal" while no longer being all things to all people. Its solution: to pursue a "client-centric business model," which it says is "unique to Deutsche Bank."
That means cutting costs by an additional euro 3.5 billion ($3.8 billion), reducing leverage at its investment bank by euro 150 billion and selling a majority stake in its Postbank consumer unit. Executives stopped short of a more radical overhaul that would have seen a complete exit from consumer banking after that option didn't win backing from the board, according to people with knowledge of the discussions who asked not to be identified because the talks were private.
'Core DNA'
Jain, 52, said the plan marks an effort to rebalance the lender's business mix and bolster capital.
"I'm aware of the fact that there was quite a lot of speculation that we might have done something even grander, even more radical," Jain said in a Bloomberg Television interview. "It really became a case of not altering the core DNA - but doing a lot, which is what the strategy is, in order to allow us to survive and cover our clients well."
Deutsche Bank decided not to dispose of its entire consumer-banking business after stress tests sought by the European Central Bank concluded a company composed purely of an investment bank and corporate lender may not be strong enough to weather a severe financial crisis, Reuters cited unidentified people familiar with the process as saying.
Profitability target
Investors said the lower target for profitability announced Monday wasn't stretching enough and voiced concern that the lender didn't give enough detail about how it will achieve cost cuts. Deutsche Bank said it will provide more information over the next 90 days.
The bank will now target a return on tangible equity of 10 per cent by 2020 - less than the 12 per cent return on equity it had planned for 2016. In the first quarter, return on equity stood at 3.1 per cent.
"To me, 10 per cent return on equity as a target is probably below cost of equity," said Christian Sole, an analyst in Brussels at Candriam Investors Group, which oversees about euro 90 billion in assets and doesn't hold Deutsche Bank shares. "Clearly, this isn't an investable company for us."
Deutsche Bank shares dropped 4.6 per cent to euro 30.13 in Frankfurt Monday, paring this year's gain to about 21 per cent. Shares have underperformed all of the biggest global investment banks since Jain and Fitschen took over three years ago.
Postbank reversal
Investors also pointed out that Deutsche Bank's plan risks leaving it with a lower capital ratio as regulators press banks to increase their buffers against losses. The lender is targeting a common equity ratio of about 11 per cent in the medium term, down from 11.7 per cent at the end of 2014. At the same time, it plans to increase its leverage ratio of equity to assets to 5 per cent from 3.4 per cent at the end of March.
"They're taking more risk and lowering the return," said Roehmeyer. "That can't please an investor."
Others criticised the bank for reversing an acquisition it completed only three years ago. The lender spent more than euro 6 billion buying a 94 per cent stake in Postbank and millions more integrating the consumer-banking operation.
"Deutsche Bank went through great pains to integrate Postbank, and at the end they sell it," said Boris Boehm, who helps manage euro 2.4 billion including Deutsche Bank shares at Aramea Asset Management AG in Hamburg. "This is incomprehensible," he said. "The high volatility in Deutsche Bank's strategy is disorienting investors."
Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co., questioned whether Deutsche Bank can find an additional euro 3.5 billion in cost cuts to meet its goals.
"If I look at your historic cost-savings plan, you don't really see that very well in the numbers," Abouhossein said on a conference call with the bank on Monday. "How are you going to make sure that these targets that you set today will actually be achieved? Five years is a long time to achieve those."
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