What Impact Will The Deutsche Bank Restructure Have On The Global Banking Sector?
Frankfurt-based Deutsche Bank announced it would be laying off 18,000 banking and investment employees on 8 July 2019, and immediately began the cull of the workforce as they arrived at 9 am that morning. This move highlights the Deutsche Bank retreat from investment banking, as it seeks to restructure its global business interests.
Concerned investors may well be querying whether this massive cutback is the first indication of another potential banking crisis, particularly as it comes just a decade after the last global financial meltdown.
However, at this moment it does seem the problem is purely linked to the top-heavy Deutsche Bank structure, and not an early sign of further chaos in the banking sector.
About The Redundancies
In the UK, Deutsche Bank had already indicated that Brexit would be likely to result in investment house job losses of at least 4,000 workers. Yet they are now laying off the total workforce of 8,000.
The bank has announced most redundancies will be in Europe and the US, while global employees working in the equity capital markets (ECM) are also impacted. It seems that employees in the area of mergers and acquisitions are not affected at this moment in time.
Why Is Deutsche Bank Struggling?
Deutsche Bank is one of the largest global banks and has been in financial doldrums since the 2008 banking crisis.
The past 10 years have seen the bank struggle to return profits, and share prices have dropped more than 70% as a result.
The bank’s ambition to become a leading Wall Street force has not been realised, and this restructure initiative means the bank will take a step back and focus initiatives around its client base instead.
Prior to this round of job cuts Deutsche Bank employed almost 92,000 staff globally, with 38,000 of these working in investments.
The restructure will see at least 18,000 jobs cut by the year 2022. The bank is the biggest lender in Germany and has been in merger talks with German CommerzBank, however, this proposed deal has been called off as it is felt to be too “risky”.
Costs for the restructuring and redundancies are likely to mean Deutsche Bank will post a loss of £2.5bn for the current quarter alone, although CEO Paul Sewing feels the results will mean it becomes “more profitable, leaner, more innovative and more resilient” over the longer term.
It’s highly likely that the German government would commit to taking over Deutsche Bank if this downward trend does continue, however, any scenario of this nature would cause immense impacts on the global banking system.
One of the top economists in the United States, Professor Richard Wolff, has commented that this move by Deutsche Bank would well be an indication of further global meltdown.
He said: “It would be easy to find statements by experts, by bank CEOs, by Wall Street commentators telling us not to worry – it’s a detail, it only affects one bank. None of that is normally true. Deutsche Bank is the biggest bank in Germany. If it has serious troubles those troubles are also affecting other banks and they’re affecting the interactions between a monster bank like Deutsche and all the other banks since these banks do an enormous amount of business with one another.”
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