Major reorganisation at Deutsche Bank

Deutsche Bank has struggled to maintain the profits investors want to see while meeting regulatory demands to reduce risk, setting aside billions to settle allegations of past misconduct, and reducing overhead costs.

Deutsche Bank last week agreed to pay $2.5bn to authorities in the United States and Britain to settle allegations bank traders rigged important market interest-rate benchmarks used to determine rates on a variety of debt, including mortgages and student loans.

The bank said its reorganisation would make it more cost-efficient and simplify its operating structure, saving $3.5bn a year by 2020, against one-time costs of €3.7bn to implement the changes.

The bank expects to hold an initial public offering for shares in Postbank and to see the division removed from its earnings statements by the end of next year.

Postbank offers branch banking to retail customers in post offices around Germany.

The bank said that streamlining operations would reduce costs and improve financial controls. It said it would pull out of some markets to focus on countries and cities where it is strongest. It didn’t say which.

It plans to reduce leverage, or the use of borrowed money, at its investment banking division by €200bn.

Leverage can enhance profits but increases the risk of loss as well. And it said it would shift financial resources away from less profitable lines of business in investment banking.

Today’s statement fills in details after a brief announcement on Friday, and follows yesterday’s announcement that the bank’s first-quarter net profit fell by half from the same quarter a year ago, to €559m.

Earnings fell despite stronger revenues from trading on markets because Deutsche Bank had to set aside an additional €1.5bn for penalties paid to US and British authorities.

Deutsche Bank shares fell 3.3% in morning trading today in Europe to 30.15.