Bloomberg reported that Deutsche Bank AG is tightening its belt even more now. According to about half a dozen people who were interviewed who have knowledge about the German lender’s policies, cost cutting measures are increasing even further now.
The cost control drive is being led by James von Moltke, the bank’s Chief Financial Officer, and has been named Cost Catalyst Program. The program is looking at cutting costs over a period of several years, the first stage of which is cutting down its costs in the next one year by €1 billion (~$1.14 billion) to bring it down to €22 billion (~$25.13 billion).
Travel expenses are one of the costs that Sewing is trying to significantly reduce. Last year, the then regional head for Deutsche Bank’s London unit, Alisdair Warren had reprimanded his team members for their massive travel spending. This unit is now also reassessing legal and compliance expenses. The unit compared itself to other banks on this parameter and found that its expenses were much higher.
According to the sources, investment bankers in Deutsche Bank have been told to travel by coach class in trains. Travel for conferences has been largely curtailed and severance packages have also been reduced. The sources said that cost cutting measures are so severe now that even small treats like daily fruit bowls have been removed.
Another area that is also under intense scrutiny are the internal processes. The bank has been for years trying to simplify its internal processes, but not very successfully. In fact, last year, the US Federal Reserve Bank qualified Deutsche Bank as “troubled”. Then this year, the bank failed its annual stress test for qualitative reasons, with the Feds citing widespread as well as critical deficiencies in Deutsche Bank’s internal control processes.
These severe cost cutting measures are a reflection of the new Chief Executive Officer Christian Sewing’s intense focus on reducing spending after previous CEO’s failed efforts at doing so.
Sewing has also appointed Frank Kuhnke as the new Chief Operating Officer, who is reporting directly to him. This is signal that the CEO is looking at establishing stronger and more direct control over expenses as well as processes.
The CEO has also been warning senior executives that if they cannot prove that they can control costs, he would not trust them to generate revenue either. Sewing has given all managers fixed budgets which they cannot cross – not matter what.
Most of the bank’s savings will still come from the plan to lay off 7,000 employees, however, Sewing is also trying to instill a cultural change within Deutsche Bank, so that costs are treated more seriously. So far, the culture of the bank has been to trivialize budget overruns, especially in the bank’s securities division.
The previous CEO John Cryan had focused on the bigger costs such as NetJets accounts, which was one of the incentives for top rung executives in the bank. However, expenses still overshot targets in the fourth quarter of 2017, when the German lender gave out millions of Euros in bonuses to try and stem the flow of people leaving the bank. Due to this, Cryan was forced to abandon a cost target, which is one of the main reasons why he was fired in April this year.
During an analyst call in July, Sewing stated that the German bank had a history of bad surprises in the fourth quarter of the year. He then said that he planned to ensure that that pattern ended this year.
The challenge is enormous as, according to Barclay’s analyst Amit Goel, the bank’s costs remain high due to a lack of investments in the past.