Deutsche Bank AG "will remain a leading European corporate and investment bank with a global network" and will achieve its profitability targets over the next few years, CFO James von Moltke told a conference June 6.
"The issue with [corporate and investment banking, or CIB,] is resource allocation. For too long we have operated in market segments where our returns were too low and the prospects for improvement too long dated," the CFO said, adding that the group should be able to break the "vicious cycle" of underperformance which has plagued it over the past few years.
"We have the resources, and we need to succeed. We simply need to gain positive momentum," von Moltke said. While aspirational to some, the set profitability targets, such as 10% return on tangible equity by the end of 2021, are achievable as most of the factors are under the bank's control, the CFO said.
Answering a question about a lack of investor confidence in the group’s ability to deliver on targets, von Moltke said that many observers do not appreciate how interlinked Deutsche Bank's businesses are.
His statements come as the exodus in the CIB division continues with Alasdair Warren, head of Deutsche Bank corporate finance for Europe, the Middle East and Africa, set to resign, followed by the lender's U.S. leveraged-finance business co-heads Scott Sartorius and Christopher Blum.
Investors have punished the bank for its poor performance, with its share price hitting a historic low May 31.
To reshape the CIB unit, Deutsche Bank had to take some "tough but necessary decisions," von Moltke told the Goldman Sachs-hosted conference in Frankfurt. The bank aims to reduce adjusted costs in CIB by more than €1 billion by the end of 2019, driven in large part by planned job cuts. "The process of front-staff reduction is well advanced and we expect to achieve the vast majority of headcount cuts by the end of the second quarter. The reshaping of our CIB franchise will also reduce our leverage exposure, which we expect to fall by more than €100 billion, or 10%, by the end of 2019, with the majority of the impact expected by the end of this year," von Moltke said.
Deutsche Bank's CIB revenue forecasts assume that a more-focused business perimeter should allow the bank to invest and build its competitive edge in core products, according to the CFO. "This is especially true of technology-driven businesses like the group's global transaction bank where greater focus should allow us to increase our investments to recapture a modest amount of share in a growing market," he said. Market growth in the transaction bank is likely to be driven by increasing global trade volumes and ultimately higher rates in Europe as well as the U.S.
In fixed income, the group expects market share to remain broadly flat as volatility and client volumes rebound from the low levels seen last year, especially to the benefit of the FX and European rates businesses. With this revenue mix and successful execution of cost-reduction programs driving sustainable margins the ROTE target should be hit, von Moltke said.
"For 2019 we are driving towards an ROTE [return on tangible equity] of greater than 4% which we think is based on an achievable CIB revenue growth assumptions but requires us to walk the difficult path of balancing the necessary cost reductions to create a sustainable model while preserving the revenue generation capacity of the franchise. Similar improvements are expected for the cost-to-income ratio of the group which should be below 70% by 2021. While this ratio would put Deutsche Bank at the lower end of our peers it would represent a material improvement from current levels," von Moltke said.
Deutsche Bank expects relatively moderate annual revenue growth of 4%.
