The Future of Deutsche Bank?
Does anyone have knowledge on what positions DB is cutting within IB? Is it mostly senior people or are junior bankers also affected?
Previously, DB said 10% of the U.S CIB jobs would be cut. Then, DB confirmed yesterday that 7,000 jobs would be cut globally. I'm not sure if more cuts are on the way, or if this could be a great opportunity to join a bank that is on its way to recovery like other banks have done in the past after annoucing similar restructing goals.
Yes, that's the purpose of the cuts. They were announced two years ago. The CEO couldn't bring himself to do it. That's why he got fired last month.
I can't weigh in on exactly who and what gets the ax, but I can share a high level view, having just done a research note for a UHNW client who custodies there.
Current CDS prices give an implied 10% chance of default within a year. That sounds bad, but up to a year and a half ago the default probability was 20%+. This doesn't necessarily mean there's now an actual 10% chance of default. It's more a gauge of market sentiment about the riskiness of the debt, and by extension, the bank as a going concern. In essence, the perceived riskiness of the debt has plunged, but the stock price has also plunged, down 30% in the last year. Either the stock investors or the CDS buyers must be wrong, one or the other.
How does DB weather the crisis? In my view, in addition to executing the cuts remorselessly, they dump all possible financial pain into the current quarter and then they have a fair chance for turnaround in the 2nd half of the year, under the new CEO. I'd second the poster who said DB is a buy. Or to be more careful, might be a buy. Its price/book is 0.4 whereas comps average 1.1.
IMO the German gov't will bail them out if necessary, although common stockholders may go to zero if that happens, with bondholders getting a big haircut.
Obviously, they need to get out of unprofitable/unsalvageable businesses, and above all, cut headcount. In this environment, DB would logically be the very last place you'd want to start an IB career. They can't just shut down the SA/Analyst hiring pipeline, but they're quite capable of hiring ppl only to lay them off weeks later. I've seen it done at other BBs.
The silver lining in the career risk is if you get laid off six weeks after you start, is there's no stigma, and potential new employers will give you a look out of sympathy. (Good luck getting out of your NYC apt. lease though.)
Oh and what about the fate of custody assets if they do go under? I had to tell the client nobody knows, because no major global custodian has ever been dissolved. However, we didn't recommend he switch custodians. Personally, I think the custody assets are pretty safe and if I were still a value guy I'd be building a long thesis for DB right now. The negative sentiment of sellside analysts is positively frightful. When/if that turns, DB could easily be a 3-bagger.
According to research provided by the onion, Deutsche Bank is experiencing minute errors caused by it's trading group after they shorted the VIX based on an internet meme. Expect a full-recovery around this time 20 years from now.
Example of a self fulfilling prophecy. For years they talked about cutting back the IBD, despite being top 10 in deal flow both in US and globally. Eventually all the negativity spilled out to put a huge damper on their reputation.
If you're going to exit a business, one should do so swiftly and abrutely, not debate about it publially for years. Terrible leadership leads to crushed morale.