By Mack Wilowski, International Business Writer
For the past month, Deutsche Bank has been engulfed in crisis.
Financial troubles began after the U.S. Department of Justice had issued the bank an obligation to pay a $14 billion settlement for purportedly issuing toxic mortgage loans prior to the financial crisis.
Ever since, Deutsche Bank’s equity price has fallen to twenty-year lows, bottoming out below $12 a share in late September, signaling investors’ lack of confidence in the bank’s management as well as falling credibility.
Given their performance, the stock price has fallen over 40 percent year-to-date, making it the fourth-worst performer on the European Financial Services index.
Investors and financial analysts are also cautious of Deutsche Bank’s massive derivative exposure, and fears that a widespread banking crisis could be triggered have circulated in recent weeks.
To counteract growing instability and to shed hope on the bank’s future, CFO Marcus Schenk has discussed slashing up to 10,000 jobs, a massive wave of layoffs that would follow a statement made in October 2015 calling for 9,000 job cuts within the bank. Together, these proposals put into action would affect roughly one in five Deutsche Bank employees worldwide.
Schenk believes job cuts will be necessary for cutting costs and reorganizing the structure of the bank. Despite last year’s statements, the proposals have not yet been set into action, as employee headcount actually increased from 98,600 global employees in late 2015 to 101,300 as of mid-2016. Many of the proposed layoffs are based in Germany, where stringent labor laws make it more expensive and difficult to lay off employees amid complicated procedures.
In addition to cuts in the labor force, Deutsche Bank seeks to reduce its base of operations and commercial influence in the United States, as mounting legal demands from the U.S. government threaten to reduce capital and cut into the bank’s revenue.
Strict regulations on Wall Street following the financial crisis have restricted the bank’s accumulation of capital and have squeezed bank profits. Roughly $5.5 billion of the original $14 billion obligation has been paid off by Deutshe Bank. However, Chief Executive Officer John Cryan believes U.S. authorities should scale back their initial demand, and has stated in a recent interview that he does not plan to raise addition capital as means of covering the settlement. Cryan had previously mentioned that Deutsche Bank’s base of American customers is sufficient as it is in number, and expanding it would not provide much benefit for the bank’s performance. Shrinking the capital requirements of conducting U.S. business would be one method of reducing capital needs.
A widely agreed upon solution for Deutsche Bank’s problems would be for the bank to simply cut back on its massive scale and go on a “diet”. This would include a substantial reduction in the bank’s balance sheet and safeguarding against risky derivative exposure. The bank is set to release its quarterly earnings on October 27, causing the equity price to steadily increase in recent days in anticipation of more positive news to come from management.
Also of interest is the German national election set to take place in 2017. German citizens and politicians alike are reluctant toward the prospect of a bailout or increased government assistance for Deutsche Bank, mainly for its aggressive pursuits on Wall Street and foreign markets and general skepticism felt toward large banks. With these events on the horizon, it will be interesting to observe what the near future will bring for Deutsche Bank.
A version of this article appeared in the Tuesday, October 25th print edition.
Contact Mack at