Over the weekend, Deutsche Bank [NYSE: DB] announced that it was planning to downsize its investment banking operations. The plan entails a complete shutdown of all its business that involves the buying and selling of shares. This process will lead to the loss of 18000 jobs, as the company plans to reduce its workforce to 74000 by the year 2022. The plan also entails the formation of a new unit that will manage assets that will no longer be part of its core operations. In the company’s estimates, those assets could be worth around 74 billion Euros.
To handle this downsizing, DB has announced that it will report a 2.8 billion Euros Q2 loss, as part of the payment for the process. According to the company CEO, Christian Sewing, this is the company’s most fundamental transformations in many decades. That’s because, it will enable the bank to go back to its roots, by focusing on its clients. It’s what helped it become a globally respected bank.
The bank’s decision to downsize comes after a merger with Commerzbank failed. While the German government was in favor of this merger, the two companies dropped it due to the risk of high costs that could defeat the whole essence of the deal.
As for the impact of the downsizing, the bank intends to save up to 17 billion Euros by year 2022. These are huge savings that could help put this company back on the right path.
Corporate restructurings in some cases help stock prices. That’s because, they improve a company’s long-term prospects. In the case of Deutsche bank, it could possibly lead to increased bullish sentiment when markets open. On Friday, the stock edged higher by 2.82%, to close at $8.03. That’s even as the bank announced that its head of investment banking, Garth Richie was exiting his position. In pre-market trading, DB has lost slightly by 1.49% to trade at $7.91.