Deutsche Bank cuts 18,000 jobs in massive overhaul

Hong Kong's International Commerce Centre, which houses the offices of Deutsche Bank there. The city may be hit harder than Singapore as the Republic is the bank's Asia-Pacific hub for fixed-income and currencies business, while Hong Kong is its Asia
Hong Kong's International Commerce Centre, which houses the offices of Deutsche Bank there. The city may be hit harder than Singapore as the Republic is the bank's Asia-Pacific hub for fixed-income and currencies business, while Hong Kong is its Asia equities hub.PHOTO: BLOOMBERG

Entire teams in Asia laid off as it scales back investment bank, but US, Europe set to see bulk of cuts

Whole teams in Deutsche Bank's Asian operations were told yesterday that their positions were gone, as the lender began axing 18,000 jobs globally in one of the biggest overhauls to an investment bank since the aftermath of the financial crisis.

The German bank launched the restructuring on Sunday in Europe, outlining a plan that will ultimately cost €7.4 billion (S$11.3 billion) and see it scale back its investment bank - a major retreat after years of working to compete as a major force on Wall Street. The bank has almost 91,500 staff around the world.

As part of the overhaul, the bank will scrap its global equities business and also cut some of its fixed-income operations - an area traditionally regarded as one of its strengths.

While the bulk of the job losses is expected to fall in Europe and the United States, the cuts also hit offices from Sydney to Hong Kong.

In Asia, the axe may fall harder in Hong Kong than Singapore, as the Republic is the investment bank's Asia-Pacific hub for fixed-income and currencies business. Hong Kong is its Asia equities hub. Deutsche had some 4,700 staff in Sydney, Tokyo, Hong Kong and Singapore, fact sheets on its website showed. The bank had about 2,000 employees in Singapore as of January last year.

Deutsche Bank gave no geographic breakdown for the job cuts.

 
 

Pretty gloomy'

Its investment banking team for the Asia-Pacific region numbered about 300 before the cuts, and 10 to 15 per cent will be laid off - almost all in its equity capital markets division, according to a senior Asia banker with direct knowledge of the plans.

Bankers in Sydney seen leaving the lender's offices yesterday confirmed they worked for Deutsche Bank and were being laid off, but declined to give their names as they were due to return later to sign redundancy packages.

One person with knowledge of the bank's operations in Australia said its four-strong equity capital markets team was being let go, but most of its mergers and acquisitions team would not be immediately affected.

One Hong Kong-based equities trader who had been laid off said the mood was "pretty gloomy" as people were called individually to meetings. "(There are a) couple of rounds of chats with HR and then they give you this packet and you are out of the building," the trader said.

Several workers were seen leaving the offices holding large envelopes with the bank's logo.

"If you have a job for me, please let me know. But do not ask questions," said one who confirmed he was employed at Deutsche Bank, but declined to comment further.

In London, staff were seen leaving the building with thick white envelopes detailing layoff packages.

Hundreds of employees at the bank’s Wall Street office were summoned to the building’s cafeteria on Monday morning to learn their fates, sources within the bank told Reuters. During one-to-one meetings with management and human resources, they were told they were being laid off and informed of their severance terms, the sources said. 

A Deutsche Bank spokesman in Singapore declined to comment on specific departures, adding that the bank would be communicating directly with employees. She told The Straits Times: "We understand these changes affect people's lives profoundly and we will do whatever we can to be as responsible and sensitive as possible implementing these changes."

Said a bank employee in Singapore as he tapped his access card to take the lift to his office: "The news is obviously depressing but at least there's some clarity on the businesses we are still going to focus on. My access card is working fine. So I am safe for now."

Oxygen

Chief Executive Officer Christian Sewing told journalists in a call in London that the bank has to "provide our strong businesses with the oxygen to prosper" while withdrawing from less promising areas. The move followed Deutsche's failure to agree to a merger with rival Commerzbank.

In the Asia-Pacific region, Deutsche Bank used to rank among the top 10 in league tables for equity capital market (ECM) deals but has since fallen well down the list, hitting 17th last year and 18th in 2019, Refinitiv data showed.

Deutsche Bank’s Asia-Pacific head of ECM, Jason Cox, left, and ECM teams were disbanded in Japan, Australia and most of Asia, people with direct knowledge of matter said, adding that only a few syndicate bankers, including those working on current deals, will remain.  

“The new investment bank will be smaller but more resilient, with a focus on our financing, capital markets, advisory services and sales and trading businesses,” Asia-Pacific CEO Werner Steinmueller said in a staff memo.

Some analysts were sceptical that the bank could grow future earnings quickly enough to reach a new target to achieve a return on tangible equity of 8 per cent by 2022, compared with a negative return last year.  “The question of where the real earnings power will come from for Deutsche Bank going forward has not been answered,” said David Hendler, an independent analyst at New York-based Viola Risk Advisors.

“It’s doubtful whether they will be able to build a better bank in just three years.”

Ratings agency Fitch said that the bank’s future credit rating will depend on how successfully it executes the plan.  Fitch downgraded the bank to “BBB” status, the lowest investment-grade status, just last month. 

“The restructuring measures involve large staff cuts and significant leadership changes, which could disrupt the aim to improve core earnings,” it said in a note published Monday.

Rating agency Moody’s said there were “significant challenges” to executing the plan swiftly, adding it would keep its negative outlook.  “It’s a risky manoeuvre, but if it succeeds, it has the potential to bring the bank back on course,” said a person close to one of the top 10 shareholders.

No dividend

 JP Morgan analysts called the plan “bold and for the first time not half-baked” but questioned the credibility of execution, revenue growth and employee motivation.

The bank said on Sunday that it would not need to raise capital to initiate the cuts, which will result in it making a loss of 2.8 billion euros in the second quarter.

It will not pay a dividend either this year or next. 

Deutsche Bank had been one of the few European banks to maintain a significant presence in the United States after the 2007-2009 financial crisis. However, it has struggled to compete with US rivals, hampered by regulatory investigations and litigation.  

 The United States had been seen as a likely focus of the cuts although the bank maintained it wants to keep a significant presence, in part to service European corporate clients doing business in the country. However, some shareholders have pushed for a full US retreat.  

Deutsche Bank said it remained committed to the United States, its second-biggest market.  “We will retain a significant presence here and remain a close partner to our US clients and to international institutions that want to access the US market,” it said in a statement.

In London, CEO Sewing said he was “reinventing” the bank, which is expected to post a loss this year. That would put it in the red for four of the past five years after a series of damaging setbacks. 

 Founded in 1870, Deutsche Bank has long been a major source of finance and advice for German companies seeking to expand abroad or raise money through the bond or equity markets.  Big cuts to its investment bank reverse a decades-long expansion that began with its purchase of Morgan Grenfell in London in 1989 and continued a decade later with a takeover of Bankers Trust in the United States.

The investment bank generated about one-half of Deutsche Bank’s revenues but is also volatile. Mr Sewing, who flagged the restructuring in May after a failed merger attempt with Commerzbank, wants to focus on more stable sources of revenue. 

“We are creating a bank that will be more profitable, leaner, more innovative and more resilient,” Mr Sewing wrote in a note to staff on Sunday.

REUTERS

• Additional reporting by Aw Cheng Wei

A version of this article appeared in the print edition of The Straits Times on July 09, 2019, with the headline 'Deutsche Bank cuts 18,000 jobs in massive overhaul'. Print Edition | Subscribe