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Deutsche Bank job cuts 'unavoidable,' CEO says as share price tumbles

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Deutsche Bank job cuts 'unavoidable,' CEO says as share price tumbles

Cutting more than 7,000 jobs at Deutsche Bank AG by 2019 is "unavoidable" if the company is to achieve cost savings targets and reach sustainable profitability in the future, CEO Christian Sewing told investors.

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The German bank announced ahead of its May 24 annual general meeting that it will reduce the number of full-time positions to "well below" 90,000 from more than 97,000; the equities sales and trading division will see headcount cut by a quarter.

Deutsche shares were down nearly 6% at 4:51 p.m. in Frankfurt.

The equities business is part of Deutsche's corporate and investment bank, which the group is downsizing as it seeks to complete a prolonged and difficult turnaround. Lackluster CIB revenues, a drag on group results for several years, contributed to the ouster of former CEO John Cryan earlier in 2018.

The bank's performance was weak in the first quarter and is likely to remain subdued in the near future.

"In the second quarter, the revenue situation remains challenging, particularly for our corporate and investment bank," new CEO Christian Sewing told the AGM. "The restructuring we have already started will affect our results this year. So, for [full year 2018] we expect restructuring and severance charges of up to €800 million."

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Ambitious goals

Sewing promised shareholders the group would deliver on its promise to keep costs under €23 billion in 2018 and €22 billion in 2019. He also reiterated the 10% target for post-tax return on tangible equity from 2021.

The ROTE goal has been questioned by analysts and investors over the past two years, with UBS analysts again calling it "too ambitious" in a research note ahead of the AGM.

To achieve around 10% ROTE, Deutsche Bank will need an adjusted cost base of less than €22 billion and revenues of up to €32 billion, well above the current level of some €26 billion, the analysts said.

Sewing told investors the bank is aware it is a long way from the targeted ROTE. But he expressed confidence that it will reach it and promised more transparency around the progress made towards achieving it.

"We want to set targets that are very viable and achievable — that's the only way in which you, our investors, know exactly where we stand in our efforts," he said. "Therefore we very soon will present to you a specific plan which shows how we aim to develop our costs and return on equity and will show how we'll be able to improve our costs step by step, year by year."

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Deutsche Bank CEO Christian Sewing

No 'financial acrobatics'

The bulk of the cost cuts over the next 18 months will be made in the CIB unit.

"We will reduce expenditure in the corporate and investment bank by more than €1 billion by the end of 2019," Sewing said. From 2019 onward the bank also expects substantial savings in the private and commercial bank, he said.

Over the past seven weeks, Deutsche has cut roughly 600 jobs in the CIB division and wants to complete most of the planned 10% balance sheet reduction by the end of 2018, according to the CEO. The group aims to cut its CIB leverage exposure by roughly €100 billion from €1.05 trillion currently.

But even though it will reduce certain businesses such as U.S. rates and its Houston-based oil and gas corporate finance operations, Deutsche will remain an international investment banking player, Sewing said.

"We are active in more than 60 countries and that's how it is going to stay because many of our clients are staying [with us] ... for this international network," he said.

Some 88 of the group's top 100 clients do business with Deutsche in the Asia-Pacific region, and 98 of them use the bank's U.S. offerings, Sewing said.

"The finance and treasury departments of many international companies rely on us," he said. "This is not financial acrobatics and [has] nothing to do with gambling. These are services that facilitate far better planning for corporations and institutional investors."

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