Deutsche Bank CEO works on turnaround plan

Frankfurt

DEUTSCHE Bank AG chief executive officer Christian Sewing is putting the final touches on a sweeping turnaround plan that may reshape Germany's biggest bank for years to come. After his first effort fell short and merger talks with Commerzbank AG went nowhere, he is seeking to radically shrink and reshape Deutsche Bank's business across the globe.

The bank is set to finalise the details of the lender's latest restructuring this weekend when its supervisory board meets to make a final decision. Up for consideration: huge job cuts most likely focused on the investment bank, another management shakeup and the creation of a new unit that will house unwanted assets. But plenty of questions remain.

Here is a look at what we know and do not know about the plan at this point:

Management changes

The scene is being set for more tumult at the top as Mr Sewing - just over one year into the job - continues a purge of the bank's top ranks that started shortly after he took over. He is said to have investment bank boss Garth Ritchie, chief regulatory officer Sylvie Matherat and chief financial officer James von Moltke in his sights.

The question is who might replace them. Mr Sewing will probably take direct control of the troubled investment unit and appoint one or two subordinates who will not join him on the management board.

Possible candidates include Mark Fedorcik, Yanni Pipilis and Stefan Hoops. Karin Dohm will probably get Ms Matherat's job, though it is unlikely to come with a board seat for now.

Job cuts

The headline number for job cuts is expected to be somewhere between 15,000 and 20,000, according to people with knowledge of the matter. The upper end of the range would be more than a fifth of the workforce; either way, it will represent the biggest reductions in decades.

The bank has already said that it will continue slashing positions at the retail and commercial clients division at a rate of about 2,000 annually. What we still do not know - amid reports of a large retrenchment in US equities - is just how many roles will be cut from the investment bank, how quickly the axe is going to fall and where the cuts will be felt the most.

Financial targets

The restructuring, with potentially thousands of severance packages, may cost as much as five billion euros (S$7.7 billion), people familiar with the matter said. Mr Sewing will not hit his full-year profitability target, other sources said. The bank will probably slip to a net loss this year, the Financial Times reported on Wednesday.

The most important new target will be for return on tangible equity. Deutsche Bank has also previously said that it wants to make the cost-to-income ratio its principal target rather than the adjusted costs measure it uses now.

In addition, the bank is in talks with regulators about potentially lowering its capital cushion, putting a question mark over where its common equity tier 1 ratio will end up.

Investment bank

The CEO wants to shift the bank away from its focus on institutional clients toward meeting the trade finance and cash management needs of large companies. He is looking at drastic cuts to equities and interest rates trading and may shutter those businesses in several countries outside Europe, people familiar with the matter have said.

But it is not all about retreat. Mr Sewing said that he wants to invest in the transaction bank, headed by Mr Hoops, as well as the private wealth management unit under Fabrizio Campelli. The scale of those cuts and investments are not yet fully known, but Mr Sewing is considering eliminating half of the bank's global equities trading workforce, people familiar have said. He also plans to hire 300 wealth managers.

Paying the bill

All the options for paying for the massive restructuring bill come with their own headaches. Mr Sewing is said to be against a capital increase because it will dilute the holdings of the bank's long-suffering shareholders. He is considering tapping into the bank's capital cushion, but such a move risks provoking the ire of regulators. Reducing the capital buffers would free up cash.

The bank could also sell the shares of its asset manager, DWS, though there is no indication yet that the option is being considered.

Non-core unit

Exiting businesses could leave Deutsche Bank with billions of euros of assets that it no longer wants. It is planning to create a dedicated unit to help sell or wind down those holdings, including the ones from the trading units it is seeking to cut or close. That move is expected to free up capital, sources have said. BLOOMBERG