Bayerische Landesbank AöR's new five-year strategy includes a "significant wind-down" in its capital markets business and job cuts as the German lender aims to transform into a specialized and streamlined bank by 2024 and substantially cut costs and boost its profitability.
The bank said it has combined its financial markets and corporates units to form a new division called corporates and markets and will wind down parts of its capital market business that are no longer profitable enough as part of its goal to concentrate its lending business in five sectors — energy, mobility, technology, mechanical and plant engineering, construction and basic materials. As a result, BayernLB expects a one-fifth drop in earnings across the entire division by 2024, while releasing large amounts of capital at the same time and reducing costs significantly.
The bank will lay off about 400 jobs in the capital market business, including downstream units in the back office and central areas, and will communicate about further job cuts in the coming months, although these will not be carried out until the autumn of 2022.
BayernLB also intends to boost earnings at unit Deutsche Kreditbank AGand achieve a return on equity of about 8% and a common equity Tier 1 ratio of at least 14% by 2024. The bank's ROE currently stands at 5%, although it noted that this is maintained considerably by positive one-off items.
The bank will invest an amount in the "high-triple-digit millions" in infrastructure and IT in the cities of Munich and Berlin and invest €400 million in Deutsche Kreditbank's growth and future in the next five years and double its customer base to about 8 million 2024 from roughly 4 million as of today. The group expects the unit's earnings to increase with the larger customer base and achieve a pretax ROE of 10% by the end of the investment period.
The lender also plans to substantially increase its loan portfolio in real estate finance and earnings in the real estate business by 2024, as it seeks to expand its commercial real estate finance business in Germany and in selected foreign markets, mainly western Europe, the U.K. and the U.S.
BayernLB noted that its new strategy will particularly impact its results in 2020 and 2021 due to the investment and restructuring expenses. However, the lender said it still anticipates to achieve a 2019 pretax profit in the "mid-triple-digit millions."