DZ Bank Reaffirms Buy Rating for Deutsche Bank (DB)

Posted April 27, 2018

Deutsche Bank AG is abandoning its ambitions to be a top global securities firm as it embarks on possibly the most sweeping overhaul yet of its struggling investment bank.

Germany's largest bank Deutsche Bank posted a sharp decline, noting that its net income in the first quarter fell by 120 million euros ($146 million), a 79 percent decline compared to the past year.

Meanwhile, revenues fell in the first quarter of 2018 by 5 percent to 7 billion euros ($8.5 billion) year on year.

Like any great saga told in carefully-planned stages fitting together to augur a dark conclusion, the fall of Deutsche Bank has been careening towards a massacre for many moons.

The German bank will reduce its corporate finance businesses in the USA and Asia, pare US rates sales and trading, and review its global equities business with an eye toward downsizing it, according to the statement.

The cuts and weaker-than-expected earnings follow weeks of turmoil at Deutsche Bank, including the ouster of its chief executive, the departure of senior managers and a stream of negative news about its performance.

"We have to act decisively and to adjust our strategy", Sewing said in the statement. He further added, "There is no time to lose as the current returns for our shareholders are not acceptable".

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"We are on a good track both in the DWS asset management business and in our Private & Commercial Bank, although we need to substantially improve profitability in both", CEO Sewing said. The bank made a return on tangible equity of 0.9 percent, compared with 4.5 percent in the first quarter of the previous year.

Christian Sewing, who was appointed as the new CEO at Deutsche Bank, stated that the bank will move away from hedge fund investment and focus on stabilizing on a few areas the bank where the bank is still dominant.

The company didn't provide numbers showing how deep the cuts to the investment bank will be.

The bank also aims to scale back operations in bond sales and equities trading, particularly in the United States and Asia, where it was once bullish.

Deutsche Bank confirmed that target on Thursday. Deutsche Bank, by contrast, said an "underperformance" in equity derivatives across Europe, the Middle East and Africa contributed to a 21 percent tumble in equities revenue to 543 million euros. "The end of its global investment banking ambitions with cuts in the USA and Asia is welcome". It increased its estimate for restructuring expenses to 800 million euros this year, up from an earlier estimate of 500 million euros, Chief Financial Officer James von Moltke said.

Today's announcements may determine the bank's credit rating, which influences its financing costs.