Deutsche Bank to reduce risk after profit misses estimates

Jain’s Strategy

That’s less than some of the firm’s competitors, which may signal that Deutsche Bank expects revenues to recover and wants to have the staff to benefit from a rebound, said Michael Seufert, a banking analyst with Norddeutsche Landesbank.

“It’s always been Jain’s strategy to target top-five if not top-three spots in investment banking because that’s where you make profits necessary to justify the investment,” said Seufert, who recommends investors hold the stock. “To do that you need the know-how and personnel.”

Headcount at Morgan Stanley will decline by about 700 in the second half, bringing total 2012 staff reductions to 4,000, Chief Financial Officer Ruth Porat said in a July 19 interview.

Credit Suisse Group AG announced plans last year to cut 3,500 jobs and lower expenses by 2 billion francs. Switzerland’s second-biggest bank said July 18 that it was planning to cut costs by an additional 1 billion francs by the end of 2013, without providing details of job losses.

Larger Zurich-based rival UBS AG disclosed 3,500 job cuts last year, with about 1,575 of those at the investment bank.

Strengthening Capital

Western European financial firms have announced more than 21,700 job cuts this year, compared with more than 107,000 in 2011, data compiled by Bloomberg show.

Credit Suisse’s plan to bolster capital by 15.3 billion francs ($15.4 billion), unveiled July 18, prompted Bankhaus Metzler analyst Guido Hoymann and Christopher Wheeler at Mediobanca SpA to say Deutsche Bank may feel pressure to boost reserves. The German bank was the third-least capitalized of Europe’s 10 largest banks at the end of 2011, according to data compiled by Bloomberg.

It is “good news” that Deutsche Bank plans to mitigate the profit shortfall by cutting risk, said Philipp Haessler, an Equinet AG analyst. “It seems that there is no risk of a capital increase, which would be bad for investors.”

Capital Target

The firm said it can still achieve a core Tier 1 capital ratio target of 7.2 percent for the beginning of next year, a figure simulated to account for fully implemented Basel III rules that begin taking effect in 2013.

“Lower full-year net income projections will be mitigated by additional de-risking measures,” Deutsche Bank said in today’s statement, referring to external analyst estimates the firm uses as a component of its simulation of Basel III rules.

“It’s not like they have a huge batch of assets they want or need to sell,” said Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt. “They’ll be looking at short-term assets and considering, when they come to maturity, whether they are worth prolonging or just letting them expire to release capital.”

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