Big ax falls as Deutsche Bank to lay off 18,000 in $8.3 billion ‘reinvention’

A man carrying a box leaves a Deutsche Bank office in London, Britain July 8, 2019. REUTERS/Simon Dawson

FRANKFURT/SYDNEY/HONG KONG/NEW YORK (Reuters) – Deutsche Bank laid off staff from Sydney to New York on Monday as it began to slash 18,000 jobs in a 7.4 billion euro ($8.3 billion) “reinvention” that will lead to yet another annual loss, a plan that knocked its already battered shares.

Germany’s largest lender said on Sunday it will scrap its global equities unit and cut some fixed-income operations in a retreat from a long-held ambition to make its struggling investment bank, with 38,000 staff, a force on Wall Street.

Deutsche Bank has almost 91,500 staff around the world.

Some analysts were skeptical that the bank could grow future earnings quickly enough to reach a new target to achieve a return on tangible equity of 8% by 2022, compared with a negative return last year.

“The question of where the real earnings power will come from for Deutsche Bank going forward has not been answered,” said David Hendler, an independent analyst at New York-based Viola Risk Advisors. “It’s doubtful whether they will be able to build a better bank in just three years.”

Ratings agency Fitch said that the bank’s future credit rating will depend on how successfully it executes the plan. Fitch downgraded the bank to “BBB” status, the lowest investment-grade status, just last month.

“The restructuring measures involve large staff cuts and significant leadership changes, which could disrupt the aim to improve core earnings,” it said in a note published Monday.

Rating agency Moody’s said there were “significant challenges” to executing the plan swiftly, adding it would keep its negative outlook.

“It’s a risky maneuver, but if it succeeds, it has the potential to bring the bank back on course,” said a person close to one of the top 10 shareholders.

JP Morgan analysts called the plan “bold and for the first time not half-baked” but questioned the credibility of execution, revenue growth and employee motivation.

The bank said on Sunday that it would not need to raise capital to initiate the cuts, which will result in it making a loss of 2.8 billion euros in the second quarter. It will not pay a dividend either this year or next.

Hundreds of employees at the bank’s Wall Street office were summoned to the building’s cafeteria on Monday morning to learn their fates, sources within the bank told Reuters. During one-to-one meetings with management and human resources, they were told they were being laid off and informed of their severance terms, the sources said.

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