Deutsche Bank in Trouble
Slashes 20% of Workforce
With a share price of $16 billion vs $58 billion of book value, clearly the market has lost most of its confidence in Deutsche Bank. Such a discount usually makes one wonder about the overall ability to remain solvent as a firm. When Lehman Brothers went under, it touted its book value heavily which far exceed its share value for months prior to bankruptcy. Book value becomes meaningless if you can't pay your bills and you end up in foreclosure. This was the same story with Bear Stearns, another firm that touted a large book value right before its near bankruptcy was avoided by a government-backstopped JPMorgan rescue, that was orchestrated at the 11th hour by the Federal Reserve and the US Treasury Department.
Two decades after Deutsche Bank acquired Banker’s Trust and rose to fame as one of the largest investment banks worldwide, it is pursuing an aggressive cutback and restructuring plan to save itself from failure and shed itself of loss-making divisions. This plan includes the cut of around 18,000 jobs, and the exit from both its Global Equities and its trading business by the year 2022. The bank hopes to focus on wealth management and simpler fee-based business lines that recurring and more consistent revenue streams.
The problem is that Deutsche Bank has lost the faith of many of its trading partners. From wealthy brokerage customers to hedge funds, to multi-national conglomerates looking for advice on their upcoming mergers and acquisitions. So their name brand has become sullied by a poor share price, a constant stream of negative publicity and a never ending chorus of fines and litigations. In the past 4 years Deutsche Bank has paid out over $10 billion of fines to US and European regulators. It has been found guilty of manipulating interest rates, helping the Russian mafia lander money and engaging in fraudulent sales of financial products. The name brand doesn't quite shine with confidence these days.
After these personnel cuts, the bank is projected to have around 74,000 in their workforce, a decrease of nearly 20%, resulting in the lowest amount of workers at Deutsche Bank since 2007. With another nearly $10 billion of severance and restructuring cost ahead, Deutsche will continue to bleed in the short term. But, if they can avoid future fines with better compliance and focus on their remaining profitable divisions, the ship could right itself. Will the German government backstop the Bank as a "too big too fail" if it can not right itself? We will see.
Written by Matthew Durborow & Edited by Alexander Fleiss