What Impact Will The Deutsche Bank Restructure Have On The Global Banking Sector?

On July 8, 2019, Deutsche Bank, based in Frankfurt, announced its intention to lay off 18,000 employees in banking and investment. The workforce reduction began immediately at 9 am that morning, marking Deutsche Bank’s retreat from investment banking as it seeks to restructure its global business interests.

Investors may be concerned about 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 seems that 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

Deutsche Bank had already indicated that Brexit would likely result in investment house job losses of at least 4,000 workers in the UK. However, they are now laying off the total workforce of 8,000. Most redundancies will be in Europe and the US, and global employees working in the equity capital markets (ECM) are also impacted. At this moment in time, employees in the area of mergers and acquisitions are not affected.

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 realized, 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.

Final Note

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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