Deutsche Bank (DB) - Get Report is dropping its global equities and trading businesses and wiping out 18,000 jobs as part of a major "restructuring" effort that the German financial giant says will improve profitability over the long run and increase returns to shareholders.

"Today we have announced the most fundamental transformation of Deutsche Bank in decades," said chief executive Christian Sewing, in a statement on Sunday. 

Announcing the move in expectation of big losses for the second quarter, the bank said it is exiting its equities sales and trading business, "while retaining a focused equity capital markets operation."

It will also "resize" its rates and other fixed income operations, and end more quickly than expected its non-strategic portfolio.

"In aggregate, Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by approximately 40%," said the European financial institution.

The bank will create a special unit -- dubbed the Capital Release Unit --  to manage the "wind down" of the assets from businesses it's exiting and cutting back on, which represented about $83 billion of risk-weighted assets and about $323 billion of leverage exposure as of the end of 2018, said the bank.

"These actions are designed to allow Deutsche Bank to focus on and invest in its core, market leading businesses," said the bank. These core business include corporate banking, financing, foreign exchange, origination and advisory, private banking, and asset management.

The move will allow the bank to give back some $5.6 billion of capital to shareholders beginning three years from now.

In addition Deutsche Bank said it will:

  • Slash about 18,000 full-time jobs, and within three years cut its remaining workforce to about 74,000.
  • Form a fourth business division to be called the "Corporate Bank" that will be made up of a global transaction bank and German commercial banking business.
  • Start a cost-cutting program to reduce adjusted costs to about $19 billion in 2022. The bank said it's "targeting a cost income ratio of 70%" in three years. To accomplish this, the bank in part expects to take about $3.4 billion in aggregate charges in the second quarter of 2019 -- including a so-called deferred tax asset write-down of a little over $2 billion. But more restructuring charges are expected in the second half of 2019 and in later years, and the bank expects "cumulative charges" of about $8.3 billion over the next few years.
  • Update its capital and leverage targets. The bank plans to operate "with a minimum" common equity tier 1 ratio of 12.5% from here on, it said. "As a result of the significant deleveraging actions," said the financial institution, "the bank targets a fully-loaded leverage ratio of 4.5% by the end of 2020 rising to approximately 5% by 2022." (Common equity tier 1 capital includes qualifying common stock and puts shareholders' funds in jeopardy if the financial institution fails; Federal Deposit Insurance Corporation-supervised institutions are mandated to maintain a common equity tier 1 capital to total risk-weighted assets ratio of 4.5%.)
  • Shake up its leadership team by Aug. 1. Christiana Riley, Bernd Leukert and Stefan Simon have been appointed new board members, and by the end of July, Management Board members Sylvie Matherat and Frank Strauss will leave the bank. Management Board member Garth Ritchie, is also expected to leave, but will serve as an adviser through November, as announced last week. Riley will head businesses in the Americas.

Deutsche Bank expects to release its second-quarter earnings on July 24, and by including the restructuring efforts, the bank forecasts a second-quarter loss before income taxes of approximately about $561 million and a net loss of more than $3.1 billion. Without including the charges, the bank expects second-quarter income -- before income taxes -- of about $4.5 million and net profit of a little under $135 million. 

This story has been updated.