Deutsche Bank, Germany’s largest lender, announced a major restructuring plan on Thursday that includes cutting 3,500 jobs globally by 2025 even as the bank reported higher-than-expected profits in 2023. The job cuts come despite the bank achieving its highest annual profit in 15 years.
Higher Profits But Continued Restructuring
Deutsche Bank reported a net profit of €5.0 billion for 2023, a 17% increase over the previous year. Revenues also rose 7% to €27.2 billion on growth across all core businesses like fixed-income trading and dealmaking.
However, the bank said it would cut about 3,500 full-time positions as it continues an ongoing overhaul launched in 2019 by CEO Christian Sewing. The layoffs represent about 3% of Deutsche Bank’s global workforce and will help save €400 million in costs by 2025.
“We have made significant progress on the transformation over the past few years. Now, the next phase begins: We aim to achieve sustainable growth and improve returns further,” said Sewing.
He described 2023 as a “very successful financial year” but said the bank is facing challenges like high inflation and the war in Ukraine. “We must and will become more efficient,” Sewing stated.
Details on Job Cuts
The upcoming round of layoffs will focus mainly on Deutsche Bank’s corporate and investment banking units in locations like New York, London, Frankfurt, and Sydney. Frontline sales and trading staff are expected to be spared significant cuts.
Back-office functions like technology, data management, and administrative roles will bear the brunt of the reductions. The bank has already started consulting national works councils on the cuts in Germany. Severance packages and early retirement incentives will be utilized to manage the layoffs smoothly.
“We will implement these changes over the next two years working closely with employee representatives and managing the process in a fair and responsible way,” said Deutsche Bank in an internal memo to staff.
|Expected Job Cuts
Reasons Behind Continued Cuts
While Deutsche Bank delivered standout earnings growth last year, its post-tax return on tangible equity (RoTE) was just above 9% – below its 2025 target range of above 10%. Cost pressures from high inflation and a potential economic slowdown mean the bank wants extra cushion going forward.
“We believe further structural cost cuts are essential for us to remain competitive and achieve our mid-term return target,” said CFO James von Moltke during an earnings call.
Additionally, Deutsche Bank has operated with a bloated cost base compared to other European and American rivals for years. Despite cutting 18,000 jobs between 2019 to 2022, analysts say more fat can still be trimmed to improve efficiency.
“There comes a point when management has to switch gears from triage mode to building sustainable profitability. We think Deutsche has reached that inflection point,” stated JPMorgan analyst Kian Abouhossein in a research note.
Positive Impacts Expected
While workforce reductions are usually viewed negatively, Deutsche Bank expects the impending job cuts to have some positive outcomes:
- Cost savings will help protect profits if the economy deteriorates
- Money saved can be invested in technology to improve services
- Further removal of redundant roles will increase efficiency
- Shareholder returns can be increased through more buybacks & dividends
CFO von Moltke confirmed that saved capital will go towards boosting returns to shareholders. Deutsche Bank raised its 2025 dividend payout target to 50% of net profits, up from the previous goal of 40%. Share buybacks will also continue after €3 billion of repurchases since 2021.
The bank’s shares jumped over 4% after the strategy update. Investors are welcoming the extra payouts and continued restructuring efforts.
Outlook and Next Steps
Deutsche Bank now aims to achieve €30 billion in revenues by 2025 under a refreshed business strategy. Profitability is also expected to keep improving as costs are optimized.
While frontline bankers will likely need to handle greater workloads due to overall staff declines, open headcounts in sectors like business banking, wealth management, and technology will increase.
Client-facing roles focused on growing Deutsche Bank’s corporate relationships and transaction volumes will be protected from cuts or even expanded. The goal is to boost market share against rivals through superior service.
The first set of layoffs is imminent, with reduction plans already underway across all regions. Executives will closely track progress and make changes if needed to hit their new 2025 goals.
More branch closures are also possible as Deutsche Bank pushes clients to access services digitally. The bank’s global physical footprint has already shrunk by hundreds of locations over the past 4 years.
While saying goodbye to thousands more staffers is unpleasant, Deutsche Bank’s leaders believe the moves will lead to a leaner and more profitable institution focused on serving client needs better.
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