Deutsche Bank Wins ECB Support For Turnaround; Cautions on Profit Targets

Deutsche Bank gets a rare boost for its struggling turnaround plans with an ECB reduction in capital requirements, but cautions that low-rate environment will make profit targets "more ambitious".
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Deutsche Bank shares topped the German market Tuesday after the country's biggest lender said the European Central Bank had relaxed some of its capital requirement rules in a rare boost to CEO Christian Sewing's stalled turnaround plans.

The ECB, which supervises the region's banks, trimmed Deutsche Bank's so-called Tier 1 capital requirement by 25 basis points, to 11.59%, a move that could give it more freedom to pursue shareholder-friendly initiatives in the coming year without the need to raise more equity. Sewing, however, cautioned employees in a company-wide memo Tuesday that low European interests rates, as well as broader global economic uncertainty, would continue to challenge the bank over the near term

 “In the past few months we have made significant progress on every dimension of our strategic transformation. We are in line with our plan and even ahead in several areas," Sewing said. "Making a strong start to our unprecedented transformation was all important. Clients, regulators and our own people have all voiced their firm support for the path we have embarked upon. This support will help us progress our transformation in a disciplined manner.”

Deutsche Bank shares were marked 0.3% higher in the opening hour of trading in Frankfurt, against a 1% decline for the benchmark DAX performance index, and changing hands at 6.55 euros per share. The stock is still down more than 5.6% for the year, however, against a 25% advance for the DAX and four-and-a-half year highs for the broader Stoxx 600 index.

Deutsche Bank also told investors Tuesday that while fixed income trading revenues had improved over the final quarter of the year, its near-term targets for profitability, which include an 8% return on tangible equity by 2022, now appear "more ambitious" given the dovish tone to global rate markets.

Deutsche Bank said earlier this year that it expects to cut around 18,000 jobs, some 20% of its global total, and create a so-called "bad bank" for around €74 billion in under-performing assets as part of the restructuring.

The overhaul, which will cost the bank €3 billion in second quarter charges, will also mean lead to a €2.8 billion loss over the three months ending in June, a suspension of the bank's regular dividend and a 40% reduction in the overall asset base of the business units targeted for change.

Sewing called the moves "the most fundamental transformation of Deutsche Bank in decades" and said it was a "restart" that would "benefit of our clients, employees, investors and society."