Deutsche Bank's Fleeting U.S. Dreams to Be Unraveled in Revamp

(Bloomberg) -- A little over two decades ago, Deutsche Bank AG set out to become a Wall Street giant. This weekend, Chief Executive Officer Christian Sewing will probably pull the plug on that dream for good.

Sewing is poised to unveil the biggest job cuts program in the bank's history, including a major retreat across its briefly held U.S. empire, people familiar with the matter have said. The reductions will probably go far beyond the previously targeted equities and interest-rate derivatives trading units and may mark the company's biggest-ever pullback from the country, they said.

The decision to slash Deutsche Bank's U.S. presence caps a long period -- since the purchase of Wall Street mainstay Bankers Trust -- in which it sought to compete toe-to-toe with U.S. banks such as Goldman Sachs Inc. and JPMorgan. The lender stuck with the effort after the financial crisis when its executives believed the challenges experienced by several U.S. banks at the time created an opening.

The strategy went sour all too soon. A series of legal probes and the prolonged failure to bring internal controls in line with tightening regulatory standards drew the ire from regulators including the Fed. At the same time, persistently low interest rates in the euro area and an extremely competitive German banking industry meant Deutsche Bank didn't have the same stable income from its non-trading operations that has helped fund the vast expansion of its U.S. rivals.

The German lender plans to start informing U.S. workers of the reductions beginning Monday provided its restructuring plan is adopted over the weekend, the people said, asking not to be identified because the matter is private. They didn't give further details on which businesses may be affected. The bank may shutter U.S. equities trading entirely and a number of senior executives including U.S. chief Tom Patrick are leaving the bank, other people have said.

North American staff tripled to about 15,000 in 1999 on the Bankers Trust acquisition and didn't fall below 10,000 until last year. The bank employed 9,253 people in the U.S. at the end of 2018, down more than 10% on the previous year on the back of an earlier restructuring by Sewing. At the time, the bank shuttered the Houston office, pulled out of advising the oil and gas industry and trimmed the repo and hedge fund businesses.

Read More: How Deutsche Bank Drifted Into Its Whirlpool of Woes: QuickTake

The expected U.S. cuts are part of a drastic overhaul Sewing is poised to adopt over the weekend that may involve as many as 20,000 job reductions worldwide and a pullback from large areas of investment banking, the people have said. It may cost the bank as much as 5 billion euros to cover expenses such as severance pay, they said.

A Deutsche Bank spokesman declined to comment.

Deutsche Bank was little changed in Frankfurt trading at 7 euros as of 9:06 a.m. The stock has declined 26% over the last 12 months compared with a 15% drop in the STOXX Europe banks index.

While Deutsche Bank doesn't break down revenue for its U.S. operations, JPMorgan estimates that fixed-income trading accounted for about half of the 5 billion euros of revenue generated there in 2017. The rest came from equities trading, advising companies on mergers, raising money in the capital markets, and providing cash management and trade finance services to large businesses.

Though the U.S. unit made small profits over past two years, it racked up billions of dollars more in losses in the preceding years. And, while it recently passed the U.S. Federal Reserve's stress test, it has repeatedly come under fire from U.S. regulators.

European operations are expected to fare much better. Deutsche Bank's Nordic region chief Jan Olsson predicted that the overhaul will have little impact on the businesses he oversees. The area is “an integral part of the strategy at Deutsche Bank,” he said in an interview on Thursday.

Sewing has repeatedly said that Deutsche Bank remains committed to its U.S. presence, as the company wants to ensure it can continue to cater to the capital markets needs of large European companies. The lender may finalize the restructuring when the board meets this weekend.

“A strong operating platform in the Americas is essential to our clients,” Sewing said in a recent memo to staff.

--With assistance from Nishant Kumar, Sonali Basak, Jake Rudnitsky and Thomas Beardsworth.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

©2019 Bloomberg L.P.