One of the world’s leading financial institutions has announced as significant change in strategy as a result of tougher new rules on leverage. Germany’s largest bank, Deutsche Bank, has today unveiled $3.8bn worth of cuts to its operations that will see it retreat from some of its investment banking assets and reduce its stake in consumer-focused Postbank.
Incoming regulatory changes are causing many of the world’s largest financial institutions to reassess their strategies. The most stringent new rules includes the leverage ratio, which requires banks to maintain a more reasonable balance between their assets and how much it borrows.
Deutsche is still expected to grow in other areas over the coming years
Deutsche Bank say they will reduce leverage at its investment banking division by €150bn in the next three years. At the same time, the bank will reduce its holding in retail-focused Postbank by floating it next year. This is likely to result in a slashing of up to 200 branches, as well as job cuts of 3,000. The investment banking division is also likely to see job losses.
Despite posting better-than-expected quarterly results yesterday, Deutsche still saw a 50 percent drop in its earnings for the first three months of the year. Last week, Deutsche Bank was fined €2.5bn for rigging interest-rate benchmarks by US and UK regulators, while its stock performance has been well below that of its global rivals over the last year.
Announcing the new strategy, Deutsche’s joint CEO’s, Juergen Fitschen and Anshu Jain, said that the firm would stop trying to spread itself too thinly across many different areas. “We must remain client-centric, but focus more sharply on mutually attractive client relationships; remain global, but become more geographically focused; and remain universal, but avoid trying to be all things to all people.”
While this shrinking of the business is significant, Deutsche is still expected to grow in other areas over the coming years. It is set expand its asset and wealth management divisions by ten percent each year until 2020, while it is likely to also focus on growing in key emerging markets like India and China.