Deutsche Bank to scale back investment bank as profits slump

The towers of the Deutsche Bank in Frankfurt. The bank will focus on European clients as it overhauls its struggling investment bank. Michael Probst / AP

The bank will scale back activities in US Rates sales and trading, shrinking the balance sheet, leverage exposure and repo financing while remaining committed to its European business.

Deutsche Bank will take another step back from its decades-long global expansion, announcing Thursday that it will focus its investment banking business more on Europe and reduce operations in the US and Asia.

Underscoring the problems at the investment bank, the trading revenue in the initial quarter fell by 17 percent from a year earlier, as compared with a 12 percent hike at USA rivals.

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Still, another setback in the United States market could cause Huawei to throw in the towel and concentrate on other regions. Issues and warnings against Huawei have come from presumptions that the company has ties to the Chinese government.

Given this background, Sewing said that he planned to slash the investment banking arm of the bank, especially in the USA, and concentrate more in the future on European customers. "There is no time to lose as the current returns for our shareholders are not acceptable", Sewing said in a statement.

The bank said it would scale back USA rates sales and trading and it would undertake a review of its global equities business "with the expectation of reducing its platform".

It will also withdraw from corporate finance outside of Europe, despite hiring a number of senior US-based dealmakers throughout 2017. Commitment to sectors in the USA and Asia, in which cross-border activity is limited, will be reduced.

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Although radical, Sewing's actions are broadly in line with what was expected from a CEO who was most recently head of private and commercial banking, and whose previous leadership positions were in risk management and audit. His ouster this month also claimed another top executive, Marcus Schenck, a former deputy CEO who had been lobbying for a strong securities unit.

By 1240 BST, Deutsche Bank share were 1.97% lower at €11.75. Business focused on just the United States or Asia would be reduced. And, while staff reduction will be "painful" they are "regrettably unavoidable", he added. First Republic Investment Management Inc. bought a new stake in Deutsche Bank in the 3rd quarter valued at $180,000. In Asia, meanwhile, the bank will cut back on purely local business.

"Our roots lie in Europe: it is here where we want to offer firms and institutional customers worldwide financial solutions". Sewing said during a conference call with analysts that the announced investment bank restructuring will be implemented "very, very quickly".

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With much of the pain centered on the corporate and investment bank, the flagship division - which accounted for more than half of Deutsche's revenue in the first quarter - is first in line for reform. The figure was short of analyst expectations for 374 million euros and down sharply from 575 million euros a year earlier.

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