Deutsche Bank (DB - Free Report) shares are down more than 6% in Monday trading after the company announced plans to cut back on thousands of jobs in an effort to revitalize the bank’s profitability. The bold restructuring plan involves the elimination of 18,000 jobs by 2022, and also eliminates the company’s global equity sales and trading business. Deutsche Bank chief financial officer James von Moltke confirmed that this will be the last strategy overhaul as they aim to trim down their headcount to around 74,000 and cut adjusted costs to 17 billion euros.
Deutsche’s newest initiative comes two days after its investment banking chief Garth Richie stepped down from his position in a mutual agreement to part ways. Second quarter results for the German bank are set to be released on July 25th and analysts are projecting a net loss of 2.8 billion euros.
In the fallout of its reformative restructuring plan, Deutsche Bank employees were spotted leaving its London offices early Monday; a source confirmed that employees were asked to gather their belongings and vacate the premises. The bank employs around 7,000 people in London out of the 7,990 people it employs in all of the U.K. Deutsche has not commented on a regional breakdown of their job cutbacks, but London and New York are focal points for its investment bank operations which will most likely take the biggest hit.
Goldman Sachs (GS - Free Report) analysts commented on the German banks plan, stating “Whilst we did expect DBK to substantially scale back its equities operation, we did not expect a wholesale exit across geographies - including in its home market of European / German equities - and business lines.” Citi (C - Free Report) analysts have set a target price of 6 euros for the stock and rates it as “high risk” for its exposure to a number of litigation issues. Deutsche has had quite a few legacy scandals relating to anti-money-laundering failures.
Deutsche is currently listed as a Zacks Rank #4 (Sell) and is showing some valuation flaws. The foreign bank stock is currently trading at a premium relative to its industry, as it is currently trading at 13X its forward earnings. Furthermore, the German lender’s earnings yield falls below the industry average of 9.78%. Despite the latest tumble, the German bank is up 9.7% over the past four weeks; shares were able to recover from hitting an all-time low in June after Deutsche CEO Christian Sewing called for “tough cutbacks” at a heated shareholder meeting. Zacks Consensus Estimates are projecting for Deutsche revenue to total $27.77 billion for the current year, which would be a decline of 7.34% from last year’s reported revenue of $29.97 billion.
Investors would be best to look elsewhere within the industry during a time of reform and institutional renovation for Deutsche. Despite the German bank’s recent struggles, there are still alternative foreign bank stocks that can make sound additions to a diversified portfolio. Banco Latinoamericano de Comercio Exterior (BLX - Free Report) is sitting at a Zacks Rank #1 (Strong Buy) and has soared 19.9% on the year. Grupo Financiero Galicia (GGAL - Free Report) is an additional foreign bank that has surged this year, with a 35.8% price increase on the year and is currently a Zacks Rank #2 (Buy). BNP Paribas (BNPQY - Free Report) is another stock with a Zacks Rank #2 (Buy) rating, and is currently being traded at a discount relative to the industry.
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