Deutsche Bank: jam tomorrow

Restructuring by a thousand leaks. Much of the detail of Deutsche Bank's latest overhaul had already been whispered. Yet despite better than expected revenue performance in the German lender's first quarter, reported on Sunday night, investors marked down its shares by nearly 5 per cent on Monday. Something in the full strategy update, which landed that morning, left the market nonplussed.

Deutsche's investment bank drove the near one-quarter increase in the group's revenue, to €10.4bn, but a big slug of litigation charges left group net income down by half.

As for the strategy update, it is as if Deutsche, having relied on leverage to make hay in investment banking for as long as it could, has finally given in to pressure to pare it back. To improve a lacklustre 3.4 per cent leverage ratio (of top-notch capital to total assets) to 5 per cent by 2020, and put itself on a par with big global peers, it will cut a fifth of the €900bn-plus of investment bank assets counted in the ratio. It will also shave off a further €140bn with the proposed sale of its PostBank arm. But such discipline was missing in the first quarter, when leverage rose.

Nor was the decline in the bank's common equity tier one capital ratio, reassuring. Risk-weighted assets rose, detracting from the credibility of its 11 per cent CET1 target. As it takes on attributes of Credit Suisse and UBS - scaled-back investment banks that focus on capital-light businesses - Deutsche could struggle to stick to that target as it expands its commercial banking and wealth management franchises.

Finally, even Deutsche's lowered target for return on tangible equity - 10 per cent from 12 per cent before - looks a stretch. For all the bank's top-line prowess and planned cost cuts, a targeted cost-to-income ratio of 65 per cent (from 84 per cent now) suggests a bank still living in a different, more leveraged era. Its shares, trading on 0.7 times tangible book value, reflect that lack of will to embrace deeper change.

Email the Lex team at [email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation