FRANKFURT (Reuters) - Deutsche Bank’s (DBKGn.DE) new leadership will present plans for building capital and cutting costs on September 11 in an attempt to address analyst doubts over the lender’s ability to generate profits in weak financial markets.
After 100 days in office, new co-chief executives Anshu Jain and Juergen Fitschen will present details about where they will focus job cuts, as banks adapt to an industry-wide downturn in investment banking profits.
Deutsche will provide details about a restructuring of asset management, after failing to find a buyer for the division.
Analysts are looking for reasons to re-invest after the bank last year abandoned its target of generating a pretax return on equity (RoE) of 25 percent, and delivered a paltry 6.8 percent pretax RoE in the second quarter.
With increased regulation and lower levels of risk taking, the lender faces a cyclical and structural dip in profit levels, so the strategy update will largely amount to explaining how to shrink the business, analysts said.
“The devil is in the details on the September 11 investor day,” J.P. Morgan analysts said, keeping a neutral rating on the stock.
One issue is how well capitalized and how profitable Deutsche Bank needs to be to remain competitive.
J.P. Morgan said Deutsche needs to plug a capital shortfall of $6.2 billion to meet Basel III capital rules by 2013. Because Deutsche has said it will avoid resorting to a capital increase through issuing new shares, the bank will instead shed risky assets.
Fewer toxic assets means having to set aside less capital under Basel banking rules, but potentially also fewer jobs and less profit.
Deutsche has already announced 3 billion euros ($3.84 billion) worth of cost cuts, including shedding 1,900 jobs.
Most of these - 1,500 - will fall upon the investment bank, which eats up around 70 percent of the group’s capital.
A raft of failed initial public offerings and a dip in merger and acquisitions activity will force Deutsche to look hard at which businesses it wants to keep, particularly in equities.
New rules which force banks to apply stricter ways to measure risky assets have already inflated Deutsche’s balance sheet from 2.164 trillion euros at the end of December, to 2.241 trillion at the end of July.
Deutsche has already detailed some additional risk-weighted asset reduction measures.
But to meet Basel III rules through shrinkage, Deutsche needs to slash another 43 billion euros worth of risky assets from its balance sheet, analysts at Espirito Santo Investment Bank research said.
Cutting assets has already hurt Deutsche’s market share in key areas, Espirito Santo said.
“From first half 2011 until first half 2012, Deutsche Bank lost the greatest revenue share in the fixed income currencies and commodities space compared with global peers.”
In addition to fewer bankers, Deutsche has said it will review its compensation policy to address both the absolute level of compensation and the relative balance between rewards for shareholders and staff.
Deutsche Bank has been less aggressive than peers Credit Suisse and UBS in cutting deferred bonuses. To free up capital, Deutsche could cut deferred bonuses by 600 million euros, analysts said.
Editing by Jason Neely