Deutsche Bank is to axe more jobs, cut bonuses and sell assets to meet tougher capital rules, its new chief executives said on Tuesday as they pledged to end a risk-taking culture driven by short-term gain.
Joint CEOs Anshu Jain and Juergen Fitschen told shareholders they will not ask them to put up new cash; instead they plan to put Germany's flagship international bank on a crash diet that will involve a 4-billion euro ($5 billion) restructuring charge and 45 billion euros in asset sales by March.
Targeting 4.5 billion euros of annual cost savings by 2015, hiving off another 125 billion euros of risky assets into a segregated unit, pooling resources across divisions and steering backroom jobs away from pricey London and New York also feature in their plan to counter a cyclical and structural downturn in banking while retaining a full-service, global business.
In a briefing held 100 days after he and Fitschen took over together on June 1, Jain said he expected job cuts "over and above" the 1,900 positions already earmarked to go, including in areas like the "failed" complex derivatives businesses. "The medium-term economic and regulatory outlook is challenging, hence we need to significantly improve our operating performance and efficiency," Jain and Fitschen said in a formal joint statement setting out their strategy. Just as the euro zone debt crisis has caused first-half profits to tumble at Deutsche, tougher regulations have forced lenders to shore up capital and change their business models to prevent a repeat of the 2007-08 financial markets crisis.
A change to the bank's corporate culture was "imperative", especially at the investment bank, Deutsche's management said in a statement, echoing comments made on Monday by the new CEO of troubled British rival Barclays. "The burden of cultural change will fall disproportionately in the investment bank. It is also the area where profit sharing with investors has been the most asymmetric," said Jain, who previously headed the investment banking arm of the bank.
"The payout ratio, it's got to go down. Employees must make their contribution," he added, referring to the proportion of profits awarded to investment bankers in pay and bonuses. Deutsche said it would alter pay to encourage its bankers to focus on "longer-term sustainable performance". Calling that a "behavioural change", it was an implicit acknowledgement that chasing rapid, but riskier, returns has proved expensive.
Bonuses will be cut in relation to business performance and senior managers will have to wait five years to receive bonus share awards, rather than have them staggered over three years. Already an independent panel is reviewing the structure of pay, it said, and its findings would affect this year's bonuses. Annual bonuses worth sometimes millions of dollars and many times the typical earnings of European voters have been a lightning rod for public protests against banks and have been blamed for promoting the risk-taking that led to the crisis.
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