Deutsche Bank To Undergo Restructuring, Big Names Exit

Deutsche Bank To Undergo Restructuring, Big Names Exit
July 8, 2019

 

At the end of July, Deutsche Bank Aktiengesellschaft’s (NYSE: DB) investment banking chief Garth Ritchie will exit from the board but will continue to offer consultation to Deutsche Bank until the end of November. Although the resignation appears to be perfectly ordinary, CNBC has revealed that it is part of the plan of the beleaguered German lender’s supervisory board to launch a huge restructuring program that could result in the size of the US equities division of the bank being reduced considerably or even shut down.

Last month, the share price of Deutsche Bank had increased by 16%, rebounding from an all-time low recorded in early June after CEO Christian Sewing called for “tough cutbacks” at a controversial shareholder conference. Nevertheless, the multi-year drop is apparent from the share price of €112 at their pre-crisis peak to the current stock price of €7. The market reacted positively to the restructuring news on Friday, with the stock of Deutsche Bank gaining 2.82% or $0.22 to close at $8.03.

Deutsche Bank executives gathered on Sunday to debate a major restructuring plan that may involve scrapping up to 20,000 jobs and establishing a fresh “bad bank” with toxic assets worth €50 billion (~$56.3 billion). The program is expected to cost as much as €5 billion, pushing the bank once again into the red this year.

In a research note to clients, AJ Bell’s Investment Director Russ Mould said that there is one feature, at least, of the proposed “bad bank” strategy which does not seem to add up.

Mould said: “Deutsche Bank has a market capitalization of 14.5 billion euros, covering its investment, private and commercial banking activities, as well as the asset management business, 187 billion euros in cash and 54 billion euros in financial assets.”

Mould also raised doubts about the value of ‘bad bank’s’ assets. He questioned as follows: “If investors currently think all of that merits a valuation of just 14.5 billion euros, why should the putative ‘bad bank’s’ assets be worth anything like 50 billion euros, regardless of what their official’ book value’ may be?”

The initiative will be the fifth reassessment of the business tactic at the embattled bank, since 2012. Mould pointed out that after spending restructuring charges of €4 billion ($4.49 billion) in 2012 and €3.5 billion in 2015, Deutsche commenced rights issues every time, amassing capital of more than €16 billion from both deals in 2014 and 2017.

Mould also believes that the bank may soon raise capital. He said, “History, and the lowly valuation attributed to Deutsche’s assets by the market, suggests another capital raise could be on the cards.”

Notably, despite the $14 billion settlement reached with the US Department of Justice, a German money-laundering investigation is still being carried out. Therefore, Deutsche Bank is not out of the woods entirely, but Mould believes that the worst is over and the consistent increase in customer deposits over the past two quarters will ensure that the bank will have no shortage of funds.

Mould, citing the failure of the previous restructuring plans, explained why investors might be skeptical about the proposed restructuring plan: “But investors are likely to remain skeptical of the restructuring plan given how the numbers don’t seem to add up, the ultimate failure of the 2012 and 2015 cost-cutting initiatives to help the share price and the losses suffered by those who backed the 2014 and 2017 capital raisings.”

As a fall out of this proposed restructuring program, Ritchie stepped down from the German financial institution by “mutual arrangement.” The departure was not wholly unprecedented. Richie’s paycheck was questioned several times in the past by shareholders. Last month, he was named by the German prosecutor in an extensive investigation into supposed tax violations. The allegations were brushed away by Deutsche Bank and Ritchie.

Before being chief of the investment banking department, Ritchie was head of the worldwide market division at Deutsche. He was also Deutsche Bank’s head of equities, since December 2008. In the initial nine months of 2008, the bank’s equity business fell roughly 60%. However, during that time, Ritchie reworked the company and transformed it from a private shop to a customer-facing store. Christian Sewing, CEO of the bank, said he appreciates Ritchie for his contribution over the period of 23 years.

Sewing thanked Ritchie for the guidance offered to the bank so far.“Garth Ritchie has been a life-long employee of Deutsche Bank: highly engaged and committed and loyal to the firm. I would like to thank him personally for his excellent cooperation and partnership through his career and over the past 15 months as my deputy.”

Notably, CNBC has reported that Chief Regulatory Officer Sylvie Matherat may also exit in the days to come. On Saturday, Frank Strauss, the bank’s head of retail banking announced his resignation as he is in disagreement with the drastic shift in strategy proposed by Sewing. Von Rohr may take Strauss’s role on the executive board while a non-board member will manage retail business operations. Ultimately, Sewing wants the size of the board, which is made up of nine members, to be cut further.

One person close to the supervisory board said that deputy-chief executive Karl von Rohr, the bank’s chief administrative officer, was seen as a likely successor to Strauss, whose contract runs until next summer.

Anonymous sources who are well connected with the bank have informed Financial Times that Chief regulatory officer Sylvie Matherat will also be forced to resign.

The series of top-level resignations may harm the stock price in the week ahead.

The historical price chart indicates that the stock is trading below its 50-day moving average. Furthermore, the Chaikin money flow indicator has a negative reading. As a result, we can expect the stock to remain bearish in the short-term.

db - technical analysis - 8th July 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

 

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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