— Four strategic goals
— Updated performance targets
— Priorities defined for the corporate divisions
Following a comprehensive strategic review of the Group, Deutsche Bank announced its new strategic plan (Strategy 2020) in April 2015. In October 2015, we provided further details on the Bank’s strategic goals, management actions in its business divisions, infrastructure functions, and regions, and updated performance targets for 2018 and 2020.
The Bank conducted an examination of its business divisions, infrastructure functions, and regions, and an assessment of their ability to serve our clients’ future needs. Based on this assessment, the Bank’s management reinforced our commitment to a global platform and universal banking product offering in which all four of our businesses, Corporate Banking and Securities (CB&S), Global Transaction Banking (GTB), Asset and Wealth Management (AWM) and Private and Business Clients (PBC), remain core. The clear intention of Strategy 2020 is to focus our universal offering of products and services in order to become a less complex, more efficient, less risky and better capitalized bank.
In detail, the four strategic goals comprise the following:
- First, to become simpler and more efficient by focusing on the markets, products, and clients where we are better positioned to succeed, which should lead to greater client satisfaction and lower costs. We want to achieve this via a material reduction in the number of locations, products and clients, as well as a simplified organization with fewer legal entities. Moreover, we intend to move towards a competitive cost structure, based on a more efficient infrastructure. Our execution plan includes the closure of onshore operations in ten countries, the transfer of trading activities to global and regional hubs and further centralization of booking locations in global and regional hubs. We aim to exit selected Global Markets business lines and to reduce the number of clients in CB&S. Furthermore, we intend to eliminate approximately 90 legal entities.
- Second, to become less risky by modernizing our technology and withdrawing from higher-risk client relationships. We intend to (a) withdraw from those client relationships where in our view the risks are too high, to (b) improve our control framework, and to (c) implement automation in order to replace manual reconciliation. We aim to modernize our IT architecture, for instance by reducing the number of individual operating systems and by replacing the Bank’s end-of-life hardware and software applications. Automation of manual processes is aimed at driving efficiency and improving control. We intend to prioritize investments in the Know-Your-Client and Anti-Money-Laundering infrastructure.
- Third, to become better capitalized. We want to reduce Risk Weighted Assets (RWAs) by approximately €90 billion to approximately €320 billion by 2018 and approximately €310 billion by 2020, excluding RWA inflation on the back of changing regulatory requirements, which is expected to be at least €100 billion by 2019/2020. Furthermore, we aim to reduce our net CRD4 (Capital Requirements Directive 4) leverage exposure by approximately €170 billion by 2018. Key components of our execution plan include the deconsolidation of Postbank, the planned sale of our entire non-controlling 19.99% stake in Hua Xia Bank and the substantial wind-down of the Non-Core Operations Unit (NCOU) as well as the exit of selected Global Markets business lines. We intend to partially re-invest some capital into our business in order to pursue growth in our Global Transaction Banking and Asset and Wealth Management businesses.
- Fourth, to run Deutsche Bank with more disciplined execution. We strive to secure disciplined execution of our main targets through the establishment of a fully accountable management team with all businesses and functions represented. Furthermore, we are committed to favoring personal accountability over committees wherever possible. We intend to combine this with a better alignment of our reward system to good performance and conduct.
We have also set ourselves clear financial targets in key areas. Starting with the regulatory ratios, we aim to strengthen our capital position, with a target Common Equity Tier 1 capital ratio of at least 12.5% from the end of 2018, and a target leverage ratio of at least 4.5% at the end of 2018 and at least 5% at the end of 2020. By 2018, we further aim to produce net savings in our adjusted costs (total non-interest expenses excluding restructuring and severance, litigation, impairment of goodwill and other intangible assets, and policyholder benefits and claims) of approximately €1.0 to €1.5 billion, against restructuring and severance costs of approximately €3.0 to €3.5 billion, to reduce total adjusted costs to below €22 billion. In addition, we plan to dispose of assets before the end of 2017 that currently have a total cost base of approximately €4.0 billion. Additionally, we aim to achieve a cost-income ratio of approximately 70% by 2018 and approximately 65% by 2020. In respect of returns to our shareholders, we aim to achieve a post-tax return on tangible equity of greater than 10% by 2018.
Execution of Strategy 2020 is already underway. In October 2015, we announced a reorganization of our operating businesses along our key client segments effective January 1, 2016. The Corporate Banking & Securities corporate division has been split into two business divisions. The sales and trading activities in CB&S have been combined in a newly created corporate division called Global Markets (GM) with a primary focus on institutional clients. A new corporate division called Corporate & Investment Banking (CIB) has been created by combining the Corporate Finance business in CB&S with the GTB division. CIB is focused primarily on serving corporate clients. Furthermore, Deutsche Asset & Wealth Management has been split. Deutsche Bank Wealth Management (WM) is now run as an independent business unit alongside the Private and Business Clients division to form the new Private, Wealth & Commercial Clients (PW&CC) corporate division focusing on private, commercial and high net worth clients. Deutsche Asset Management (AM) has become a stand-alone corporate division and focuses exclusively on institutional clients and the funds business. We believe that these structural changes better equip us to deliver on Strategy 2020, and we aim to have our cost reductions and capital measures materially completed by the end of 2018.
Strategy 2020: Our new core corporate divisions
On the Strategy 2020 initiatives for the corporate divisions in detail:
- In Global Markets (GM), the initiatives to deliver Strategy 2020 aim to reduce RWAs and CRD4 leverage exposure, improve profitability and reduce complexity. In addition to our previously announced exit of uncleared CDSs, we will exit from legacy Rates assets, Agency Residential Mortgage-Backed Securities (RMBS) trading and high risk-weight securitized trading. We intend to rationalize activities in Emerging Markets Debt, Rates & Credit OTC clearing and low-return client lending and target a reduction of leverage exposure consumption by our Fixed Income & Currencies (FIC) businesses, while continuing to optimize leverage and RWA consumption across the platform. In order to realize identified growth opportunities, we will invest in Prime Brokerage and Credit Solutions with balance sheet released from exiting and optimizing other parts of the business. At the same time we intend to reduce our client and country footprint, rationalize our platform infrastructure and enhance the control environment.
- As of January 1, 2016 the corporate-client focused Corporate Finance group of CB&S has been combined with GTB to form the new Corporate & Investment Banking (CIB) division. The creation of the new CIB division is intended to enable us to better serve corporate clients with our full set of banking products. We intend to retain strength in Debt Capital Markets with focused efforts to grow market share in Advisory and Equity Capital Markets. Within the new CIB division, GTB remains committed to executing on its strategic priorities: strengthening and deepening relationships with target clients, acquiring new target clients, especially in Asia and the U.S., further building its capabilities to serve mid-cap clients in Germany, continuing its investments in operational excellence, and optimizing its business portfolio while maintaining strict cost, risk and capital discipline.
- As of January 1, 2016, we have combined PBC and Deutsche Bank Wealth Management (WM) to create the new division Private, Wealth and Commercial Clients. PW&CC pursues a strategy of creating a leading, digitally enabled advisory bank with a strong focus on growth in Private Banking, Commercial Banking and Wealth Management. PW&CC objectives include the provision of seamless client coverage with a distinct Private Banking and Wealth Management approach in Germany, a strengthened European presence, expansion of services to Ultra High Net Worth clients in Asia, the Americas and the Middle East, and a focus on entrepreneurs in Germany and across Europe. Furthermore, PW&CC expects to realize significant synergies to improve efficiency in product offering, digital investment, operations, overhead and support functions. Additionally, it seeks to improve capital efficiency by further strengthening advisory capabilities and putting less emphasis on capital intensive products. In line with the changing behavior of our clients, we aim to sharpen our distribution model by strengthening our omni-channel capabilities with additional investments into our digital offerings and by closing more than 200 branches in Germany.
- In Deutsche Asset Management, we intend to focus on delivering robust, sustainable investment performance across our fund products and investment solutions, and seek to gain market share globally while maintaining leadership in our home market of Germany. We foresee continued cooperation and connectivity, where appropriate, between AM and WM, as well as across the Bank, in offering solutions to retail and institutional clients.