In theory Deutsche Bank is now on the mend. The various "radical transformation" announcements and letters to staff made and sent by CEO Christian Sewing in recent days claim that the bank has embarked upon a "new start" that will set it on the path to "sustainable profitability" and the generation of "long-term, sustainable returns for shareholders."
This is the plan. However, JPMorgan analyst Kian Abouhossein is not convinced. Most damningly - and most worryingly for anyone working for Deutsche's investment bank - Abouhossein says the reformed business, which is supposed to be losing 40% of its staff, still won't cover its cost of equity even when the restructuring is complete.
Using figures from company reports, Abouhossein says the return on tangible equity for Deutsche's investment bank in 2018 was just 2%. In 2022, he says Sewing is targeting an RoTE in the investment bank of 6%. And that's not enough.
This "is still low for the IB, and would remain well below the cost of equity," Abouhossein adds.
Thousands of job losses later, the implication is that Deutsche's investment bank still won't make sense.
This is even presuming that Sewing's targets are met. Abouhossein notes that they may prove ambitious. Between 2018 and 2022, he says that Deutsche is targeting a compound average growth rate of 0% for its investment bank while substantially reducing trading analysts held on the balance sheet.
"DB’s revenue forecasts for the divisions assume a relatively healthy operating environment," says Abouhossein. Let's hope that this assumption holds. More promisingly, the JPMorgan analyst says the new strategy is at least "bold" and, "for the first time not half-baked but a real strategic shift."
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