As Deutsche Bank cuts 18,000 jobs in a major restructuring effort, Kevin Doran, managing director and CIO at AJ Bell, says the bank has "very much buried their head in the sand for easily a decade now" and "it's only since 2014, 2015 that they've taken any action whatsoever."
In what the bank refers to as its “most fundamental transformation” in decades, Deutsche Bank is exiting its trading business and focusing on being a resource for German corporations.
Deutsche Bank’s stock (DB) is down about 7% so far this year after hitting an all-time low hit just last month.
“If you look at the stock price right now, the market is very, very doubtful about their ability to pull this off,” Doran tells Yahoo Finance’s “The First Trade.” “There’s clearly work to be done in convincing analysts and investors that this thing is going to work.”
Investor loyalty
The bank is putting investor loyalty to the test with the cost of its massive restructuring. The German-based bank says the overhaul will result in $8.3 billion in charges over the next two years and a suspension of its dividend for the first time in at least a quarter-century.
“As an investor, you look at Deutsche Bank and think why would I particularly go for shares in DB when I’ve got access to Barclays (BCS), Santander (SAN), Standard Charter (STAN.L) as other restructuring plays, trading at similar discounts, but are much further down the line [in the recovery],” Doran says.
Deutsche Bank’s CEO Christian Sewing is promising better returns for investors who ride out the overhaul. He expects to return $5.6 billion to shareholders through dividend and stock buybacks “starting in 2022.”
“If they can do that, that can easily see the stock price trading at $45-$50,” says Doran. Shares are now trading under $8.
‘Bad bank’
Deutsche Bank plans to overhaul its trading operations by creating a so-called bad bank to hold tens of billions of euros of non-core assets.
But Doran says a sale of those assets is not guaranteed.
“They claim a number of these assets are of short duration,” he says, “so that would suggest to me that there’s going to be some fixed-income assets in there and some derivatives assets in there, which will have a natural maturity. So not necessarily selling these assets off, just allowing them to mature.”
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.
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