Deutsche Bank performance boost hinges on cost-cut plans

Mon Jun 2, 2014 11:23am EDT
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By Thomas Atkins

FRANKFURT (Reuters) - Deutsche Bank AG's pitch to investors on the merits of its planned 8 billion euros ($11 billion) share issue comes with an ambitious cost-savings vow, vital if it is to boost key performance measures in line with rivals.

Deutsche portrays itself as Europe’s last man standing in global investment banking after rivals such as Barclays Plc and UBS AG scaled back their operations in the lucrative but risky field, arguing its share issue will ensure it is positioned to vacuum up business they abandoned once bond markets recover.

But those familiar with detailed plans at the investment bank – Deutsche’s biggest division by far - say management is betting more on cost cuts than a market boom to help it meet rivals' key performance ratios, at least in the short to medium term, given that a boom remains out of sight.

“It’s all about costs,” said one senior official close to Deutsche’s plans for investment banking. “On the revenue side ... we’re not counting on any kind of uptick ... But that’s an extra bonus for when the world normalizes.”

Slides that Deutsche executives have showed to investors include a map plotting the path to efficiency, a target of 65 percent in the cost-to-income ratio by 2015, an improvement on 77 percent at the end of March. The target is adjusted, meaning it excludes costs for nasty stuff like litigation and restructuring costs.

Not highlighted by the bank, or widely seized on by investors who will pay for the share issue, the slide depicts roughly 1 billion euros in new cuts described only as “management action”, which come on top of the 2.3 billion euros in cuts already promised.

Those are likely to hit things like infrastructure and processes more than people, said the person close to the investment bank plans, without being any more specific.

A spokesman for the bank declined to elaborate on the nature of the cuts.   Continued...

The headquarters of Deutsche Bank AG is pictured in Frankfurt May 25, 2013.   REUTERS/Ralph Orlowski