When Deutsche Bank CEO Christian Sewing told Deutsche Bank shareholders at the bank's annual general meeting this morning that he was prepared to make "tough cutbacks" at DB's struggling investment bank, he wasn't kidding.
Four sources familiar with the bank's thinking reportedly told Reuters that the bank is planning serious cuts at its US equities business, including prime brokerage, cash trading and equity derivatives, to try and placate the bank's frustrated shareholders. The bank's rates-trading business is also earmarked for cuts.
The bank's perennially money-losing US equities business has been scorned by some of DB's biggest activist shareholders, including Cerberus Capital Management. However, Chairman Paul Achleitner and Deutsche's rotating door of post-crisis CEOs have refused to make serious cuts, believing that it's critical to ensuring Deutsche's status as a truly 'global' bank.
But as merger talks with Commerzbank collapsed and speculation that DB could once again fail the Fed's 'stress test (the results are expected next month), the bank's shareholders insisted ahead of Thursday's meeting that something needed to change.
It's unclear how many of the bank's 9,275 US employees will be impacted by the decision, and Reuters' sources said the official announcement of the cuts is "not imminent."
Last year, DB's investment bank eked out a 1% return on equity, a full 15 percentage points below the ROE for JPM's investment bank.
And if the Fed does fail DB again, expect even more cuts as AML fines and the hostility from the Fed will make it increasingly difficult for DB to maintain its US presence.