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Deutsche Bank to Cut Costs, Shrink Balance Sheet

CNBC.com with Reuters
Tuesday, 11 Sep 2012 | 9:43 AM ET

Deutsche Bank will not ask its shareholders for new capital but instead shrink its balance sheet and cut costs to meet stricter regulations, it said on Tuesday, pleasing investors who pushed the stock up.

Deutsche Bank
Hannelore Foerster | Bloomberg | Getty Images
Deutsche Bank

The bank said it would aim for 4.5 billion euros in annual savings by 2015 to survive in a less profitable investment banking world.

The new plan is much more aggressive than its previous cost cuts revealed in July. At that time, the bank said it would slash 1,900 jobs in an effort to cut costs by about 3 billion euros ($3.67 billion).

Deutsche Bank also said it will take a 4 billion euro ($5.1 billion) restructuring charge and move 125 billion euros worth of risky assets into a non-core unit.

Investors had been particularly worried that Germany's largest bank would have to raise new capital to meet regulatory requirements.

But Deutsche Bank co-Chief Executive Anshu Jain said the bank had decided not to raise capital at this juncture. (Read More:Bankers Told to Watch What They Say at Bars)

"Our guidance is clear, we're saying that the management team at Deutsche Bank is confident that between generating surplus revenues and cutting assets at a very rapid basis... that gives us enough confidence to hit the targets we talked about," he told CNBC's Patricia Szarvas in Frankfurt.

The bank said it will aim for a Core Tier 1 capital ratio of at least 10 percent by 2015 and 8 percent by 2013 under the new Basel 3 rules agreed to by global regulators.

Deutsche Bank's Jain: The Euro Will Survive
Anshu Jain, co-CEO of Deutsche Bank, says ECB Chief Mario Draghi's unlimited bond purchases announcement has "galvanized" markets.

The shares rose 1.5 percent in Frankfurt.

The company also said it would achieve a post-tax return on equity of 12 percent or more by the end of 2015.

Other banks have also been cutting costs to deal with lower returns and higher capital requirements. Last week, Nomura said it would make cuts in its equities and investment banking businesses in order to reduce costs by $1 billion.

Deutshe Bank's co-Chief Executives Anshu Jain and Juergen Fitschen outlined the new plan at an investor day in Frankfurt, just 100 days since taking over.

Dirk Becker, a banking analyst at Kepler Capital Markets told CNBC earlier that Deutsche Bank's shares were trading at a big discount. Becker has a 44 euro price target on the stock.

"What you buy is probably one of the best investment banking franchises in the world... Deutsche Bank has a huge floor trading business, huge client franchise."

Becker said that while Deutche Bank was exposed to Europe's debt crisis, its exposure was less than that of other German lenders such as Commerzbank and state-owned regional banks, called Landesbanks. (Read More:World's Safest Banks)

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