The Deutsche Bank board is considering paying no dividend for 2015, sending a clear message that the bank is no longer worth what it once was and may not be able to pay shareholders the dividends they’re accustomed to receiving.
John Cryan, co-CEO, made the decision to mark down its securities unit’s value because of rules that will require the bank to hold more capital. With higher equity requirements, Deutsche Bank’s profits have suffered.
Cryan ismaking preparations to scale down the trading empire built by Anshu Jain, his predecessor. The move will lift capital levels, lower costs and push Deutsche Bank up from its current position of being the worst-valued stock among all global banks. But these results will not come without a sacrifice. The bank may have to give up its goal of remaining a top investment bank and cutting back on some parts of the expansion the bank had been pursuing for the last25 years.
The bank stated that it wrote down goodwill to zero at its consumer- and investment-banking units. The securities business chargewas due in part to the $9 billion acquisition of Bankers Trust Corp. bank in 1998. The transaction was a major step for the company in becoming a global investment bank as it expanded its access to the United States.
Between the securities writedown, legal costs and changes in its retail-banking unit will likely cause a loss of 6.2 billion euros (about $7 billion) in the third quarter. The bank may cut worker compensation and this year’s dividend as a result.
Deutsche Bank’s stock dropped to 25.03 euros, down 1.8%, on the news.
The bank is set to reveal more details of its strategy on October 29. In July, the company stated that it was able to reduce investment bank assets without causing significant damage to the franchise.
The former CEOs of the company, Josef Ackermann, Jain, Hilmar Kopper and Rolf Breuer, built the debt trading business into the bank’s largest unit, which earned the company billions of euros. However, last year’s revenue was 30% below its level in 2009 as increased regulation and record-low interest rates are making trades less profitable.
Jain had plans to scale back the company’s trading business, but stepped down in June after receiving the lowest approval rating from shareholders in over 10 years.
Analysts say that the restructure plan is crucial for Deutsche Bank as well as the market’s assessment of the plan and how the company will implement the plan.