Deutsche Bank is poised to reach an agreement with labour representatives this week that will pave the way for the German lender to eliminate about 1,000 jobs in its home market as part of CEO John Cryan's cost cuts announced last year, people with knowledge of the matter said.
The planned job cuts, which need to be signed off by the works council, will mostly affect back-office staff such as in information technology services, said the people, who asked not to be identified because negotiations are private. The Frankfurt-based lender in June struck an agreement with its works council to eliminate about 3,000 full-time positions, including 2,500 jobs at its private and commercial clients business.
Cryan, 55, has sought to reassure investors that he's able to boost profitability as concerns about mounting legal costs prompted some clients to pull funds and investors to question the lender's financial health. As part of his overhaul announced in October 2015, the CEO plans to eliminate 9,000 jobs, or about 9 per cent of the global workforce, including 4,000 positions in Germany.
"Deutsche Bank has two challenges -- on one hand it needs to increase its capital ratio, and on the other it needs to change its business model and improve profitability," said Daniel Regli, an analyst at MainFirst. "For the latter, one way are cost cuts, and the nod from the works council is a small step forward."
An official for Deutsche Bank declined to comment.
Cryan has struggled to reverse a slide in shares that eroded almost half of the company's market value this year. Deutsche Bank shares touched a record low last month after the U.S. Department of Justice requested US$14 billion to settle a probe into the sale of residential mortgage-backed securities, more than twice what the lender has set aside for litigation.
The CEO told Germany's Bild newspaper last week that he doesn't plan to raise capital and ruled out government assistance. The stock rebounded on Friday after Agence France Presse reported that the lender was nearing a settlement of US$5.4b with the Justice Department.
The lender's US$2b of 6 per cent additional Tier 1 bonds, the first to take losses in a crisis, fell US0.4 cents on the euro to about 75 cents, according to data compiled by Bloomberg.
The notes fell as low as US69 cents last week. After jumping 17 basis points on September 26, credit-default swaps insuring Deutsche Bank's senior bonds against losses erased their earlier increase, falling 24 basis points during the rest of the week, according to data from CMA. The swaps were up 10 basis points on Monday to 234, the data show.
"The CDS movement last week was about uncertainty," Chris Whalen, a senior managing director at Kroll Bond Rating Agency, told Bloomberg Television on Monday. "We don't see any credit issues with Deutsche Bank."
Adding to the lender's legal woes, six current and former managers including former asset and wealth management head Michele Faissola, along with former executives of Nomura Holdings Inc. and Banca Monte dei Paschi di Siena SpA, were charged in Milan for colluding to falsify the accounts of the Italian lender. A judge on Saturday approved a request by prosecutors to try 13 bankers on charges over separate derivative transactions Monte Paschi arranged with the securities firms, according to a lawyer attending the hearing.
While a potential US$5.4b settlement with the Justice Department would leave Deutsche Bank's key capital ratio "comfortably" above regulatory minimums, the lender may also face a penalty of as much as US$2.3b in a money-laundering probe tied to its Russia operations, analysts at Barclays Plc wrote in a note. Goldman Sachs Group Inc. analysts said a Justice Department settlement of that amount without consumer relief would reduce the bank's common equity Tier 1 ratio by up to 51 basis points.
The lender's CET1 ratio, a measure of financial strength, was at 10.8 per cent at the end of June. Deutsche Bank is seeking to reach a ratio of at least 12.5 per cent by the end of 2018.
Cryan and other top German executives are scheduled to travel to Washington this week as business leaders and central bankers gather for the International Monetary Fund and World Bank meetings, according to the people. The managers may use the trip to also continue negotiations with the Justice Department to settle the investigation, they said.
Europe's largest lenders have slashed costs and eliminated thousands of jobs to help shore up earnings and meet tougher capital rules. ING Groep NV on Monday announced plans to cut about 5,800 jobs as it accelerates its digital transformation. Commerzbank AG said last week that it will eliminate about one in five jobs and suspend dividend payments.
Cryan has already said that 2016 will be the peak restructuring year and that the lender may fail to be profitable after posting the first annual loss since 2008 last year. The CEO signaled in July that the bank may have to deepen cost cuts after second-quarter profit was almost wiped out.
Deutsche Bank is scheduled to report third-quarter earnings on October 27.