Deutsche to cut €100m from domestic retail banking unit

Lender plans to scrap legal entity that runs the operation and merge it into group

Deutsche Bank plans to cut about €100m in annual costs by streamlining its corporate structure in German retail banking, as chief executive Christian Sewing prepares to face investors on Tuesday.

The German lender plans to scrap the separate legal entity that runs its domestic retail banking operations, which is called Deutsche Bank Privat- und Firmenkundenbank AG (PFK), and merge it into the group structure, according to people familiar with the situation.

Deutsche is expected to formally announce the decision at a capital markets day on Tuesday where Mr Sewing is facing pressure from investors to show progress in executing the most radical restructuring in the bank’s history. The revamp, which was unveiled in July, comes at a time when Deutsche is reeling from falling revenues and high costs.

The presentations for the capital markets day were published on Deutsche Bank’s website on Tuesday morning ahead of the event which starts at 1pm.

They show that the bank has given up its target of 2 per cent annual revenue growth in the private bank and now says that revenue will flatline by 2022, as the division is going to be hit by lower-for-longer interest rates. Deutsche also lowered its return target for the division from more than 12 per cent return on tangible equity to 10-11 per cent.

The PFK structure dates back two decades to a time when Deutsche wanted to exit retail banking, either through listing its business on the stock market or merging it with a rival. While the bank never went through with this, it kept the legal entity it had created for the mooted spin-off.

At the end of 2018, PFK employed 34,000 staff and held a fifth of the bank’s total assets. It has a separate banking licence, its own executive and supervisory boards, and separate risk and control functions. This has led to duplication and internal red tape, according to people familiar with the situation; by getting rid of the structure Deutsche hopes to save some €100m a year without additional job cuts. This will contribute about 7 per cent to the private bank’s total cost reduction target of €1.4bn by 2022.

Deutsche Bank declined to comment. 

Deutsche Bank’s retail banking operations is part of its private bank, which lies at the core of Mr Sewing’s strategy to revive Germany’s biggest bank and wean its dependence on falling investment banking revenue. 

The lender’s German retail business operation accounts for more than 60 per cent of the private bank’s €8.7bn in annual revenue. Mr Sewing wants to grow the private bank’s revenue by an average of 2 per cent per year by 2022. He has also promised to lift its return on tangible equity to above 12 per cent by then. Over the first nine months of 2019, the private bank’s return on tangible equity stood at -1 per cent. 

It is really tricky to assess where the bank really stands. There are just too many moving parts,Alexandra Annecke, Union Investment

Analysts and investors are calling on Deutsche Bank to disclose more details on the execution of its turnround plans on Tuesday. “At the moment, it is really tricky to assess where the bank really stands,” said Alexandra Annecke, a fund manager at Union Investment, Germany’s third largest asset manager which holds owns 0.4 per cent of Deutsche. “There are just too many moving parts,” she added. 

“Lifting the profitability in German retail banking is one of the toughest challenges as competition in this segment is just brutal”, said Michael Hünseler, head of credit portfolio management at Assenagon, a German investment manager that owns Deutsche Bank debt.