Deutsche Bank AG on Monday released details of its long-awaited strategic overhaul designed to close the gap with rivals for profitability and capital adequacy.
The German lender said it would scale back at its investment banking and retail operations while strengthening transaction banking as well as asset and wealth management services.
"Today marks the next milestone in the journey we began in 2012. We reaffirm our commitment to being a leading global bank based in Germany [but] must ... focus more sharply on mutually attractive client relationships," co-chief executives Anshu Jain and Jürgen Fitschen said.
But their plan, which is in line with what has been previously reported by The Wall Street Journal and others, met initial skepticism. Deutsche Bank shares traded down 2.8% early Monday, compared to an unchanged benchmark index DAX.
The overhaul was deemed necessary because Deutsche Bank's shares have lagged major rivals over the past three years due to the bank's lower profitability and substantial legal risks.
Deutsche Bank will implement a new cost-cutting program to reduce annual costs by EUR3.5 billion ($3.8 billion), on top of the current program designed to strip EUR4.5 billion in expenses.
The bank also lowered its targeted return on equity, a key gauge of profitability, to at least 10% by 2020. It previously aimed at 12% by the end of next year.
"The new targets are later-dated than we expected," said analyst Amit Goel from Exance BNP Paribas. Jefferies analyst Omar Fall said the targets need to be taken with a pinch of salt given the bank's weak history of delivering on goals.
On Sunday, Deutsche Bank said that legal costs halved its first-quarter net profit to around EUR559 million.
On Monday, it said it would shave around EUR200 billion in certain assets from the investment bank, which will see EUR800 million in disposal costs and EUR600 million drop in annual revenue, Deutsche Bank strategy chief Stefan Krause told analysts.
The bank will focus on reducing activities with hedge funds, repo businesses and certain trading activities that have become less profitable amid new regulations. At the same time, it will boost assets in other areas of the investment bank by around EUR50 billion to EUR70 billion.
Deutsche Bank also aims to reduce its retail banking operations by floating a majority stake in its Postbank unit on the stock market by the end of next year.
The bank will also cut the number of its own retail branches by around 200, from 700, while investing up to EUR500 million in the unit's digital technologies. That is around half of the overall EUR1 billion in investments into Deutsche Bank's digital technologies.
The lender will keep its European retail banking network with branches in Italy, Spain and other countries, contrary to widespread speculation.
Cutting back at its investment and retail banking arms is set to help Deutsche Bank improve its capital adequacy, which trails rivals. The lender aims to improve its leverage ratio, which compares loss-absorbing capital with total assets, to 5% from 3.4%, while keeping its equity ratio stable at 11%.
A key area of investment will be two rather small units. Deutsche Bank will invest more than EUR1 billion in its global transaction banking unit and expand the balance sheet of its asset- and wealth-management unit by up to 10% per year until 2020.
Continue Reading Below