The CEO of Deutsche Bank, Christian Sewing, promised the shareholders in May a program of cuts as the entity had never experienced before, but the supervisory board has waited for the last days before the summer holidays to vote for an agenda of dismissals that could affect up to 20,000 workers. This week the meeting is scheduled to be approved for the purge, which will be announced taking advantage of the least summer media impact. Agencies such as Reuters, which have consulted internal sources of the bank, calculate the cut in a fifth of the staff. Since Sewing acceded to the position, the total number of bank workers has fallen to 91,500 employees since the previous 95,400, but nothing is enough to stop a drain of results and especially on the stock market. The shares that in 2007 were gladly paid for around € 100, today are barely sold for € 6. A loss that exceeds 93%. Even so, the final balance of March reflected that the market value of its derivatives amounted to 331,000 million euros, the total balance of the bank amounted to 1,44 billion euros, a figure that exceeds the GDP of Spain.
The council talks about a "transformation" of the first commercial bank in Germany and a strategy to "improve sustainability and benefits", although the damages that the ECB policy is infringing to the entity are more than obvious. Draghi also threatens new interest rate cuts that will continue to cost hundreds of millions of euros, so the bank's managers consider that the right moment for the cut is now.
The wing most affected by the cuts will be investment banking. Specifically, the bank will dispense half of its employees and analysts who operate in the variable income section, in the derivatives section and in which it adjusts the rating of fixed-income assets. Inside the bank it is rumored that all veteran analysts will fall.
These new dismissals will be added to the 750 full-time jobs that last Friday the entity cut back on the occasion of its merger with Postbank. The CEO also prepares changes at the bank's top, according to German media. The head of the investment banking wing, Garth Ritchie, chief compliance officer, Sylvie Matherat, and CFO, James Von Moltke, are the senior officials whose names are on the table.
The cuts will also be extended to the bank's activity chart. Sewing wants to close or sell those lines of business that do not bring benefits and the Financial Times has published a plan to create a bad bank that brings together high risk assets, mainly long-term derivatives valued at 50,000 million euros. Since January, shares of Deutsche Bank had fallen 2.68%, but on Friday they rose 3.32% after the bank successfully passed the annual stress test of the Federal Reserve and extended the information on this project .
The bad bank would store or sell assets valued at up to 50,000 million euros, after adjusting the risk, but within the supervisory board there are critical voices in this regard that argue that, in spite of the magnitude of the operation and of an evident minimization of risks, the effects on the balance sheet would be as significant as the entity needs and would generate a perverse effect on the confidence of the entity, which has already deteriorated. The board must also face a change of reality in the market, propitiated by the extraordinary measures decreed by the ECB. Mario Draghi's bond purchase programs have resulted in the crystallization of a new trend in which investors, instead of acquiring shares, buy bank bonds, a reality that is difficult to reflect in the balance sheet but is part of Deutsche Bank's day-to-day life.
The council must also decide what is done in the United States. Deutsche Bank faces obstacles such as accusations of money laundering and failed stress tests and is considering the possibility of making cuts in the stock trading division of that country, including main brokerage and stock derivatives. Fusion strategies also remain on the agenda. The studied with Commerzbank and the one that ended up shelving is not an abandoned idea, but rather parked by the board, with the hope that Deutsche Bank will get a recovery that allows it to negotiate from a position of strength, or at least not from the position of weakness manifests where you are currently. Cross-border possibilities are also contemplated. And above all it is necessary to achieve a correct assessment of the bank's situation. During the last twelve months, many of the leading European banks have lost about a quarter of their market capitalization in a difficult interest rate environment and it is extremely difficult to separate in the analysis what part of Deutsche Bank's losses correspond to the context and what part is a consequence of its current structure.