Deutsche Bank shares still sliding on doubts about turnaround
Analysts say CEO is right to slash trading desks but question if he can make the plan work amid low interest rates and inroads by US banks
London/Frankfurt — Deutsche Bank shares extended losses on Tuesday on investor doubts that the new CEO can revive the lender by shrinking the investment bank and returning to its roots as banker to corporate Germany.
Christian Sewing, CEO for just more than a year, and his finance chief are on a week-long roadshow to explain the restructuring.
Sewing plans to invest a quarter of his fixed salary in Deutsche shares, a person with knowledge of the matter said.
Deutsche’s stock price has fallen 10% since Sunday’s restructuring announcement to cut 18,000 jobs in a €7.4bn “reinvention”. It is the biggest two-day decline in almost three years. Shares were down 4% on the day in late-morning trading, after sliding as much as 6.5% earlier. The bank’s bonds also fell.
Analysts and investors say Sewing is right to slash Deutsche’s trading desks but question if he can make the plan work in practice when interest rates are still low and US banks have expanded their share of the German market.
“There seem to be some concerns around the plan details, particularly the ability for the bank to retain revenues while cutting costs,” one of the bank’s top 25 shareholders told Reuters, citing worries that the bank would need fresh equity to execute Sewing’s plan.
Analysts with RBC Capital Markets wrote that the bank’s outlook for revenue growth is “ambitious” and much risk is associated with implementing the plan.
Ratings agency Fitch, which downgraded the bank to BBB status in June, the lowest investment grade, echoed this. “Cutting back volatile, capital-intensive and underperforming sales and trading activities, and further reducing the cost base should improve profitability and strengthen leverage, but execution risks are high,” it said.
Deutsche plans to focus on corporate banking and asset and wealth management, areas that can offer more stable revenues than investment banking but are increasingly competitive.
The bank began cutting jobs in its trading business on Monday, with staff laid off in offices from Sydney to New York.
Deutsche Bank’s capital instruments took a further hit on Tuesday, with a US dollar additional tier 1 (AT1) perpetual instrument callable in November 2021 dropping as much as 2.4c on the dollar to 84.62, setting the yield at a hefty 30.4%.
The euro-denominated debt also suffered losses with a perpetual AT1 bond callable in May 2027 falling 1.5c to 86.56, with the yield rising to 11.89%.
The bank plans to finance the restructuring by lowering its capital buffers, said Suvi Platerink Kosonen, a credit market analyst at ING. “The market is trying to understand how big a risk all of this is for the bank going forward,” she said.