Many European banking woes began with the global financial crisis of 2009, at which time, U.S. banks were required to clean up their businesses quickly and recapitalize their balance sheets.
European banks, on the other hand, staved off that necessity for years but their rapidly shrinking deal volumes and market volatility have now brought the problems into the open (ref. WSJ). Deutsche Bank and other European banks have tried to stem some of the distress by exiting unprofitable business lines as well as pulling the businesses back from certain regions while at the same time refocusing on businesses they hope will bring in more stable profits. In the reorganization process, Deutsche Bank’s investment bank, buoyed by the acquisition 20 years ago of the U.S. Banker’s Trust which allowed it to go toe-to-toe with Goldman Sachs and other big U.S. investment banks, will now be shrunk dramatically as well as reorganized and some parts of it sold. The bank will also exit its global equities sales-and-trading business, continuing to offer a few services in that area such as share underwriting. The bank is expected to cut about 18,000 jobs by 2022 and post a net loss of $3.14 billion in the second quarter, as the result of its restructuring efforts. It will also suspend shareholder dividends for 2019 and 2020, and by making drastic cuts to its 91,000 global workforce it is anticipating that it will be able to reduce billions of dollars in costs while reserving enough revenue and capital to fund the restructuring effort without asking shareholders for additional money upfront. Prior to determining that the drastic moves toward reorganization must be made, the bank had tried more shallow cuts as well as other options such as a merger with rival Commerzbank, that didn’t work out. Analysts see CEO Sewing as adequately addressing the need for a serious reorganization, saying, “There can be no sacred cows.” Sewing reports that what they are engaged in is “a fundamental rebuilding of Deutsche Bank . . . which will bring us closer to our core strength, our DNA” and back to banking roots.