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Deutsche Bank eyes huge restructuring drive that could cost billions of euros

Key Points
  • Two sources have told CNBC that the embattled German lender's supervisory board will meet on Sunday to discuss the restructure, which could see Deutsche Bank's U.S. equities division trimmed substantially, or even closed down.
  • The program could reportedly cost as much as 5 billion euros, which could drive the bank back into negative territory this year.
  • Deutsche's shares have risen 16% over the past month, bouncing off an all-time low in early June.

Deutsche Bank executives face a critical weekend as they meet to discuss a mass restructuring project, likely to be announced in the coming days, which could involve the axing of up to 20,000 jobs and the creation of a new 50 billion euro ($56.3 billion) "bad bank."

Two sources have told CNBC that the embattled German lender's supervisory board will meet on Sunday to discuss the restructure, which could see Deutsche Bank's U.S. equities division trimmed substantially, or even closed down. The program could reportedly cost as much as 5 billion euros, which could drive the bank back into negative territory this year.

Several sources also told CNBC that due to the uncertainty surrounding the restructuring plan, a number of employees sent out farewell emails before starting their Independence Day weekend stateside.

However, restructuring seems to have started with the bank announcing Friday that investment banking chief Garth Ritchie has agreed to step down, and sources suggested Chief Regulatory Officer Sylvie Matherat is also heading for the exit.

Deutsche shares have risen 16% over the past month, bouncing off an all-time low in early June after CEO Christian Sewing called for "tough cutbacks" at a contentious shareholder meeting. However, the multi-year decline is evident in a current share price of 7 euros, as opposed to 112 euros at their pre-crisis peak.

The tumbling share price has reflected the bank's long run of legacy scandals, many of which relate to anti money laundering failures, along with the collapse of merger talks with domestic rival Commerzbank, which may have eased pressure to trim or hive off its investment banking arm.

Christian Sewing, the new CEO of Deutsche Bank, speaks at the Deutsche Bank annual shareholders' meeting on May 24, 2018 in Frankfurt, Germany. Shareholders, frustrated by years of poor performance by Deutsche Bank, are calling for Achleitner to step down.
Thomas Lohnes | Getty Images

However, there is one aspect, at least, of the reported "bad bank" plan which does not seem to add up, AJ Bell's Investment Director Russ Mould said in a research note.

"Deutsche Bank has a market capitalization of 14.5 billion euros, covering its investment, private and commercial banking activities, as well as the asset management business, 187 billion euros in cash and 54 billion euros in financial assets," Mould commented in a note on Friday.

"If investors currently think all of that merits a valuation of just 14.5 billion euros, why should the putative 'bad bank's' assets be worth anything like 50 billion euros, regardless of what their official 'book value' may be?"

What is therefore unclear, he suggested, is the cost to Deutsche of spinning off and then winding down these unwanted assets, which according to reports are mainly long-term derivatives. Those costs "come before the expenditure and cash outlay that would come with any substantial reductions in headcount," Mould explained.

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Deutsche Bank could cut 15k-20k jobs: Dow Jones

Capital raise on the cards?

The project will be the fifth strategy rethink at the beleaguered bank since 2012. Mould highlighted that following both a 4 billion euro ($4.49 billion) restructuring charge in 2012 and a 3.5 billion euro restructure in 2015, Deutsche ended up with rights issues each time, raising over 16 billion euros in capital across the two deals in 2014 and 2017.

"History, and the lowly valuation attributed to Deutsche's assets by the market, suggests another capital raise could be on the cards," Mould said.

With a German money-laundering investigation still ongoing following 2016's $14 billion settlement with the U.S. Department of Justice, Deutsche is not quite clear of litigation risk yet, but Mould suggested it was "over the worst," and that customer deposit increases over the past two quarters will provide a steady source of funding.

"But investors are likely to remain skeptical of the restructuring plan given how the numbers don't seem to add up, the ultimate failure of the 2012 and 2015 cost-cutting initiatives to help the share price and the losses suffered by those who backed the 2014 and 2017 capital raisings," he concluded.

Deutsche Bank has declined to comment on the reports.

—CNBC's Annette Weisbach contributed to this article.