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Macaskill on markets: Deutsche Bank and the art of the retreat

The rationale to accelerate cuts in its US investment bank is obvious, but an orderly withdrawal will be hard to execute.


Deutsche Bank chief executive Christian Sewing had a couple of pieces of good news when he unveiled the firm’s full-year 2018 results at the beginning of February. Deutsche had delivered an annual profit for the first time since 2014 and its ‘jaws’ were positive, meaning that costs fell faster than revenues during the year.

It was a minor triumph that was undercut by an alarming trend in the fourth quarter of 2018, when the cost-to-income ratio for the corporate and investment banking unit pushed back above 100%, meaning that Deutsche’s core division wasn’t even covering its absolute costs – never mind generating a return in excess of its cost of capital.

Sewing was predictably soon confronted with another challenge, in the form of a report that important investors would like him to accelerate cuts in Deutsche’s US investment bank.

The rationale for this move is obvious. While Deutsche’s global investment bank has been struggling to retain market share recently, its US sub-division has been a perennial underperformer, regularly losing money while consuming substantial amounts of capital and making an outsize contribution only as a source of many of the bank’s regulatory and reputational scandals.

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