FRANKFURT/LONDON (BLOOMBERG) - Deutsche Bank chief executive officer John Cryan tore up his own turnaround plan in an admission that the 17-month-old effort flopped.
Directors at Germany's largest bank late on Sunday (March 5)approved measures - most crucially, plans to raise about 8 billion euros (S$11.98 billion) in a share sale - that effectively restart what has already been the most turbulent transformation in its recent history.
Among the moves: naming two deputy CEOs who may now be positioned to succeed Cryan; selling a piece of the asset-management business and abandoning the sale of the consumer-banking unit, which was the linchpin of the blueprint he scrapped.
Speaking on a conference call ON Sunday, Cryan took pains to note that installing the deputies was his idea. Yet the developments underscore how, almost two years after he took over, Deutsche Bank has been unable to plot a course to a more profitable future while seeking to eliminate 9,000 jobs.
"We take the brave step of admitting we were going in the wrong direction," Cryan, 56, said on the call, adding he intends to see the new strategy through to fruition. "I don't intend to go anywhere."
Even though they're being tapped for a capital infusion for the fourth time since 2010, some investors welcomed the developments as a way to end questions about the firm's financial strength. Selling a minority stake in the asset-management unit within the next two years and unloading some assets at the investment bank will help raise another 2 billion euros of capital.
Deutsche Bank's last three capital increases raised about 21.7 billion euros - compared to the current market value of 26.4 billion euros. Even after a recent rally, the stock is 29 per cent lower than when Cryan took the helm in 2015.
"The shareholder dilution is enormous," said Michael Huenseler, an investor at Assenagon Asset Management, which holds a stake in Deutsche Bank. "But at the same time, this package should end what has been hurting Deutsche Bank for so long: the discussion about the capital situation. Now the bank has to prove that it can be profitable."
Deutsche Bank plans to integrate the Postbank consumer division and still aims to reduce total costs to 22 billion euros by 2018, the company said ON Sunday.
Chief financial officer Marcus Schenck, 51, and Christian Sewing, who oversees wealth management and consumer banking, will become co-deputy CEOs. The company said it will find a new CFO "in due course."
The lender, which has posted more than 8 billion euros of net losses in the past two years, has almost doubled in market value from a September low, making a capital increase more attractive. Last month, a Chinese conglomerate led by aviation tycoon Chen Feng became the fourth-largest shareholder by taking a 3.04 per cent stake.
Deutsche Bank fell 1.3 per cent to close at 19.14 euros in Frankfurt on Friday, and shares traded in the US continued to drop after Bloomberg reported on the plans to raise capital. The stock trades at about half the bank's tangible book value, below European peers including UBS Group, which trades at 1.3 times book, and France's BNP Paribas at 0.9 times book.
The capital increase was underwritten at 11.65 euros a share, a 39 per cent discount to Friday's closing price of 19.14 euros.
Losses and mounting legal bills had raised doubts about Deutsche Bank's financial strength. While the bank in December settled a US Justice Department inquiry into crisis-era mortgage securities for about half of what authorities originally sought, the firm still faces investigations into whether it manipulated foreign-currency rates and precious metals prices and whether it facilitated transactions that helped investors illegally transfer billions of dollars out of Russia.
Cryan said the capital measure will bolster confidence in Deutsche Bank as a counterparty, after some clients reduced business with the lender in the fourth quarter. The bank said the share sale will boost its common equity Tier 1 ratio to 14.1 per cent and that it aims to stay "comfortably above" 13 per cent. The measure stood at 11.9 per cent at the end of 2016.
Shares of major investment banks have climbed since Donald Trump's victory in the US presidential election in November, as investors bet he will ease regulation and spend to spur growth, driving up interest rates. That optimism may help Deutsche Bank tap markets and end concerns about its capital.
"It's a very smart move and the conditions are perfect," said Davide Serra, founder of Algebris Investments. "Ten billion euros is what will fix it once and for all."
Jeff Urwin, who led the investment banking division, will retire from the management board after a transition period, the bank said. Cryan will take direct oversight of the US operations, and the firm will recombine its investment banking and trading units after announcing a split of the two in 2015. Schenck will run the new investment banking unit with Garth Ritchie, who currently leads the trading division.
The firm plans to cut more than 2 billion euros of costs from the 24.1 billion euros in adjusted expenses it had last year. The bank will cut another 1 billion euros by 2021. It expects 2 billion euros of severance and restructuring costs, most of which will come over the next two years. Asked about job cuts on the call, Cryan declined to give details
The company said it also will place greater focus on corporate clients in investment banking and allocate 65 per cent of risk-weighted assets, up from the current 55 per cent.
Deutsche Bank said it plans at least a minimum dividend of 0.11 euro per share for 2017 and a "competitive payout ratio" starting in fiscal 2018. That reverses Cryan's late-2015 decision to scrap the bank's dividend for the first time in 60 years.
"It shows confidence," said Ingo Speich, a fund manager at Union Investment.